Background and Introduction
1. The plaintiff instituted the present suit through a plaint dated 10th June 2010 challenging the sale of his property L.R. No. Limuru/Ngecha/1120 (the suit property), by public auction. He seeks, inter alia, a declaration that the sale and transfer of the suit property to the 3rd defendant (the purchaser) was illegal and void; cancellation of the transfer in favor of the purchaser and any related entries in the title; a permanent injunction restraining the purchaser from interfering in any way with the property; an order to set aside the transfer and re-convey the property to him, damages for fraud; an order for the Bank to provide an accurate statement of account for the loan amongst other reliefs.
2. The plaintiff asserts that he is the registered proprietor of the suit property, a parcel of land measuring approximately 11.04 acres, developed with horticultural farming infrastructure. In 1996, he secured a loan of Kshs. 5,000,000/= from Co-operative Merchant Bank Limited, the predecessor of the 1st defendant Bank, by executing a charge over the suit property.
The plaintiff’s case:
3. The plaintiff contends that the terms of the charge were not adequately explained to him and that he did not receive a copy of the charge instrument. Despite commencing repayment, the Bank, having assumed the charge, filed HCCC No. 508 of 2003, demanding an amount of Kshs. 22,757,181.45, inclusive of interest at 30per cent per annum. The plaintiff asserts that the demand was unlawful, exaggerated, and intended to clog his equity of redemption.
4. Subsequently, due to what he terms as pressure, the parties entered into a consent judgment in which the plaintiff was to pay Kshs. 9.1 million in installments. He avers that despite adhering to the payment schedule, the Bank advertised the property for sale on 29th April 2008 and again on 20th May 2008, prompting him to file HCCC No. 265 of 2008 seeking injunctive relief. The court granted an interim order on condition that the plaintiff deposits Kshs. 4 million in court within 21 days, but the sale proceeded while he was seeking an extension of time to comply with the court order.
5. The plaintiff claims that the sale to the purchaser was fraudulent, alleging that no proper statutory notice was served, no auction took place as advertised, and no valuation was conducted. He asserts that the property was sold at a gross undervalue of Kshs. 11,950,000/= despite its market value being Kshs. 19,000,000/=. Further, he alleges that there was collusion between the defendants to deprive him of the property. He contends that the purchaser did not pay the required 25per cent deposit at the fall of the hammer.
6. He also draws the court’s attention to Legal Notice No. 52 of 2007, which operationalized section 44A of the Banking Act, introducing limitations on recoverable amounts in respect of non-performing loans. He claims that the Bank failed to determine or disclose when the loan became non-performing and thus acted in breach of the law by purporting to sell the property.
7. Following the transfer of the property to the purchaser, the plaintiff contends that he was evicted, resulting in a loss of income of Kshs. 7,874,770 from damaged crops.
The defendants’ case:
8. The Bank and the 2nd defendant (the auctioneer) have opposed the suit vide a statement of defence dated 22nd July 2010, asserting that the sale of the suit property to the purchaser was lawful and that he is the registered proprietor. They admit that the plaintiff obtained a loan of Kshs. 5,000,000/=, secured by a charge over the suit property, and confirm that the plaintiff executed the charge and was provided with a copy of the charge instrument.
9. The defendants acknowledge that as of 4th April 2002, the outstanding loan balance was Kshs. 22,757,181.45, attributed to the plaintiff’s default. They deny that the sum was inflated or intended to fetter the plaintiff’s equity of redemption. They further deny exerting undue pressure on the plaintiff during the negotiation of the consent in HCCC No. 508 of 2003, asserting that the plaintiff voluntarily initiated the negotiations.
10. The Bank contends that the plaintiff defaulted on the consent agreement, thereby causing the judgment amount to revert to the original debt. They reject the claim that the advertisement for the auction was unlawful, maintaining that the Bank properly exercised its statutory power of sale due to the plaintiff’s persistent default.
11. Regarding HCCC No. 265 of 2008, the defendants argue that the plaintiff obtained injunctive orders deceitfully, which were subsequently vacated due to non-compliance. They deny any conspiracy, fraud, or illegality in the sale and contend that the allegations of collusion are unfounded. The Bank also disputes the plaintiff’s claim for Kshs. 7,874,770/= as damages for lost crops, asserting that the plaintiff was not unlawfully evicted from the property. Additionally, the Bank denies any breach of Section 44A of the Banking Act, maintaining that the loan was not subject to the limitations prescribed therein.
12. On its part the purchaser contends that it is the lawful owner of the suit property, having purchased it as a bona fide purchaser for value at a public auction conducted by the Bank in exercise of its statutory power of sale. The purchaser denies the plaintiff’s claims of fraud and conspiracy, asserting that the auction was legally conducted and that it had no prior relationship with the Bank or the auctioneers.
13. The purchaser further denies that any court order was in force at the time of the purchase that would have restrained the sale. It maintains that the plaintiff has no legal basis to demand entry or access to the property, arguing that such claims would infringe upon its proprietary rights. The purchaser also asserts that the present suit is res judicata, as the issues raised were addressed and conclusively determined in HCCC No. 508 of 2003 and HCCC No. 265 of 2008. It characterizes the current suit as vexatious, frivolous, and an abuse of the court process, urging the court to dismiss it with costs.
The Hearing:
14. At the hearing the plaintiff testified as PW1 and called an additional witness, Pius Khaoya, the author of the valuation report dated 24th April 2008 as PW2. The Bank and the auctioneer called the 2nd defendant, a licensed auctioneer as DW1 while DW2 was David Mwangi, an employee of the Bank. The purchaser called 1 witness, Joseph Muchiri Kihanya, a director of Bueri Limited, the purchaser. I will not reiterate the full details of their testimonies, which align with the facts already summarized, but I will refer to relevant parts of their evidence in the analysis where needed.
Analysis and determination
15. Upon conclusion of the hearing the parties filed their respective submissions which I have carefully considered alongside the pleadings and evidence presented. The following issues arise for determination:
i. Whether the present suit is res judicata in light of previous proceedings in HCCC Nos. 508 of 2003.
ii. Whether the consent judgment in HCCC No. 508 of 2003 extinguished the 1st defendant’s statutory power of sale.
iii. Whether the 1st defendant lawfully exercised its statutory power of sale over L.R. LIMURU/NGECHA/1120.
iv. Whether the sale and transfer of the suit property to the 3rd defendant was fraudulent, irregular, or unlawful.
v. Whether the 3rd defendant was a bona fide purchaser for value without notice.
vi. Whether the plaintiff suffered any loss or damage as a result of the sale and, if so, whether he is entitled to compensation.
vii. Whether the consent judgment in HCCC No. 508 of 2003 extinguished the 1st defendant’s statutory power of sale.
Whether the present suit is res judicata in light of previous proceedings in HCCC Nos. 508 of 2003 and 265 of 2008:
16. The doctrine of res judicata is anchored in Section 7 of the Civil Procedure Act, which provides that:
"No court shall try any suit or issue in which the matter directly and substantially in issue has been directly and substantially in issue in a former suit between the same parties, or between parties under whom they or any of them claim, litigating under the same title, in a court competent to try such subsequent suit or the suit in which such issue has been subsequently raised, and has been heard and finally decided by such court."
17. The rationale underlying this provision is to bring finality to litigation and prevent the same parties from re-litigating the same issue, thereby conserving judicial resources and upholding the principle of certainty in legal proceedings. In Kenya Commercial Bank Limited V Benjoh Amalgamated Limited & Another, [2017] eKLR, the Court of Appeal emphasized that for the plea of res judicata to succeed, the following elements must be established conjunctively:
i. The matter in issue must be directly and substantially in issue in the former suit and the current suit;
ii. The parties in the two suits must be the same or litigating under the same title;
iii. The court that determined the former suit must have been competent to try the subsequent suit; and
iv. The matter in issue must have been finally determined by the court.
18. There is no doubt that the amount of litigation undertaken by the parties herein has been enormous and unrelenting. It is not the first time that this court has invoked the doctrine of res judicata. Considering the protracted nature of the litigation, it is unsurprising that issues previously canvassed and determined by other courts have repeatedly resurfaced for adjudication.
19. The first issue for determination is whether the consent judgment in HCCC No. 508 of 2003 extinguished the Bank’s statutory power of sale. Upon a thorough examination of the ruling delivered in HCCC No. 265 of 2008 on 18th September 2009 by M.K. Koome, J. (as she then was), it is apparent that the plaintiff, the Bank, and the purchaser were all parties to that suit, and the subject matter of the dispute was the same suit property currently before this court. Similarly, the consent judgment in HCCC No. 508 of 2003 involved the same parties and was centered on the same suit property now under consideration.
20. In addressing the question of whether the consent order in HCCC No. 508 of 2003 effectively extinguished the Bank’s statutory power of sale, the court pronounced itself as follows:
“The plaintiff contends that the first defendant’s right to redemption by way of the exercise of the chargee’s power of sale was extinguished by that consent order. I have read the consent order and, with tremendous respect, the consent order did not discharge the charge over the suit premises. If the plaintiff had complied with the consent order and paid the sum agreed, that argument would hold.” (emphasis added).
21. The court further elaborated as follows:
“In this case, the plaintiff admits having defaulted in the loan repayment. He failed to comply with a consent order; he comes to court and obtains an order of injunction on conditions which he does not comply with. Is he entitled to an equitable relief by way of an order of injunction? I am afraid the plaintiff is not entitled to an equitable relief…” The Bank, under the terms of the lending, was entitled to realize the charged property to recover the loan… (emphasis added)
The plaintiff’s claim is that the 1st defendant did not have the statutory power of sale and that the property was sold illegally. Bearing in mind that the plaintiff defaulted in loan repayment, I am afraid he has not established a prima facie case with a probability of success.”
22. From the foregoing, the court unequivocally held that upon the plaintiff’s default in complying with the consent judgment, the Bank’s statutory power of sale was revived and remained enforceable. The learned Judge underscored that the terms of the charge were reinstated upon the plaintiff’s default, thereby entitling the Bank to exercise its power of sale over the suit property. The sentiments of the Judge were noted and upheld in yet another Ruling dated 4th November 2011 (Njagi, J) equally emphasizing that the matters were res judicata.
23. Consequently, I concur with the Bank’s position that the issue of whether the statutory power of sale was extinguished by the consent judgment is res judicata, having been conclusively determined in HCCC No. 265 of 2008. No further finding is warranted on this issue.
Whether the sale and transfer of the suit property to the 3rd defendant was fraudulent, irregular, or unlawful:
24. Regarding this second issue, I have carefully reviewed the aforementioned ruling delivered by Koome, J. and I am satisfied that the court conclusively addressed this matter by stating as follows:
“The other issue for consideration is whether the property was sold in fragrant disobedience of the court order issued on 20th May, 2008. The defendant contends that the transfer was signed on 26th June, 2008 and given to the second defendant who was not a party to this suit. I have gone through the records, I see an affidavit by the auctioneer who says that he conducted the auction on 20th May, 2008 and the property was sold at 11.00 am and he was served with an order of injunction at 1.55 pm on the same day after he had conducted the sale. The transfer itself was registered at the lands office on 10th July, 2008. On the 10th of July 2008, the second defendant was not a party to this suit when an order of status quo was issued.
One also needs to understand what was; the status quo on the 10th July 2008 regarding the suit premises. If the plaintiff’s claim is that there was a b[r]each of a court order, then this is a matter which could have been appropriately dealt with by way of an application for contempt of court. On the face of the record, I am not able to establish that the transfer was effected in contravention of a court order.” (emphasis added)
25. The plaintiff now contends that the sale was irregular and fraudulent, alleging new grounds, inter alia, the lack of a proper statutory notice and the absence of a public auction. These are matters that were well within the plaintiff’s knowledge at the time, and are directly related to the issues under consideration by the court when it sought the interlocutory relief but were conspicuously not raised at that stage. If the plaintiff genuinely believed that the statutory notice had not been served or that a public auction had not been conducted, the appropriate time to canvass such issues was during that stage when the issue was first brought to the attention of the court.
26. The failure to do so raises the question as to why these purported irregularities were not addressed earlier, especially given that the plaintiff was actively participating in the proceedings and had the opportunity to raise them. The doctrine of res judicata, as codified under Section 7 of the Civil Procedure Act, extends not only to issues that were actually raised and determined but also to those that could and ought to have been raised in the earlier proceedings.
27. This principle was aptly stated in Henderson V Henderson, (1843) 3 Hare 100, where it was held that:
"The court requires the parties to bring forward the whole case, and will not permit the same party to open the same subject of litigation in respect of a matter which might have been brought forward as part of the subject in contest, but which was omitted through negligence, inadvertence, or even accident." (emphasis added)
28. In the present case, the failure by the plaintiff to wholly challenge the propriety of the sale process, including the issuance of statutory notices and conduct of the public auction, at the previous hearings, only to raise such matters during the substantive hearing, smacks of an attempt to litigate piecemeal, an approach that the doctrine of res judicata was specifically designed to prevent.
29. The Court of Appeal in E.T. V Attorney General & Another, [2012] eKLR reaffirmed this position, holding that a party cannot raise in subsequent proceedings issues that were within its knowledge but were not canvassed in prior litigation. The Court of Appeal warned that:
“Courts must always be vigilant to guard against litigants evading the doctrine of res judicata by introducing new causes of action so as to seek the same remedy before the court. The test is whether the plaintiff is in the second suit is trying to bring before the court in another way and in a form a new cause of action which has been resolved by a court of competent jurisdiction”. (emphasis added)
30. Interestingly, the observation made by this court in HCCC No. 265 of 2008 confirms that indeed, the issues now raised were not in issue at the earlier litigation. The court observed as follows:
“The plaintiff’s complaint as I understand it has nothing to do with the issuance of the statutory notices and the requirements for advertisement … failure to conduct a valuation prior to the sale, and non-payment of the deposit by the purchaser at the fall of the hammer. He further contends that the sale occurred in disregard of a court order and that the transfer was conducted secretly and in haste.”
31. Accordingly, I find that the allegations of lack of statutory notice and absence of a public auction are matters that ought to have been canvassed earlier. Their re-introduction at this stage amounts to an abuse of the court process, and the doctrine of res judicata bars such belated attempts to re-litigate matters previously within the plaintiff’s knowledge.
32. In any case, upon reviewing the evidence, it is clear that the required notices were served and some are contained in the plaintiff’s own bundle of documents. The prayer for statement of accounts in relation to the loan account is moot as the Bank filed the same even though the same were not admitted into evidence.
Whether the 3rd defendant was a bona fide purchaser for value without notice:
33. Upon perusing the decisions on record, I note that this issue was not addressed in any of the previous determinations. In assessing whether the purchaser qualifies as a bona fide purchaser for value without notice, the court is guided by established jurisprudence.
34. The Supreme Court in Dina Management Limited V County Government of Mombasa & 5 Others, [2023] KESC 30 (KLR) adopted the definition of a bona fide purchaser as provided in Black’s Law Dictionary (9th Ed), which emphasizes that a bona fide purchaser is one who acquires property by paying valuable consideration without notice of any prior claim, and without actual or constructive notice of any defects in the title.
35. Similarly, the Court of Appeal in Uganda in Katende v Haridar & Company Ltd, [2008] 2 EA 173 outlined the requirements for establishing bona fides, emphasizing the absence of fraud or notice thereof and the purchaser’s good faith acquisition.
36. In Lawrence Mukiri V Attorney General & 4 Others, [2013] eKLR, the court provided a comprehensive definition of a bona fide purchaser for value without notice, outlining the essential elements which are that the purchaser holds a certificate of title; that the purchase was made in good faith; that the purchaser had no knowledge of any fraud; that the vendors held apparent valid title; that the purchase was made without notice of any fraud; and that the purchaser was not a party to any fraud.
37. Finally, in Samuel Kamere V Lands Registrar, [2015] eKLR, the Court stressed that a bona fide purchaser must demonstrate acquisition of a valid and legal title; performance of necessary due diligence to ascertain lawful ownership; and payment of valuable consideration.
38. The evidence on record confirms that the auction for the suit property was publicly advertised in the Daily Nation Newspaper on 5th May 2008, indicating that the sale of the suit property was scheduled for 20th May 2008 at 11:00 am at the auctioneer’s offices.
39. The purchaser produced three (3) receipts issued by the auctioneer on the day of the auction, reflecting payments totaling Kshs. 2,987,500/=, representing 25per cent deposit of the purchase price. This evidence corroborates DW3’s testimony that the purchaser complied with the payment terms stipulated for auction sales.
40. The purchaser additionally produced a letter of offer confirming that it was advanced a facility of Kshs. 12,500,000/= specifically for the acquisition of the suit property. This evidence substantiates the purchaser’s assertion that valuable consideration was paid through a legitimate financial facility, negating any suggestion that the acquisition was contrived or without consideration.
41. No evidence has been presented by the plaintiff to demonstrate that the purchaser was aware of any insufficiency in the purchase price or that he had reason to suspect that the property was being sold at a gross undervalue. A bona fide purchaser for value without notice is entitled to protection unless it can be demonstrated that he was aware, or ought to have been aware, of the inadequacy of the purchase price or any irregularities in the sale process. In the absence of such evidence, I am not persuaded that the purchaser’s conduct was anything other than that of a bona fide purchaser acting in good faith, having duly paid the required consideration at the fall of the hammer.
42. I note that the purchaser holds a valid certificate of title to the suit property, issued following the auction, and no evidence has been presented to impeach the legitimacy of that title. In accordance with the principles articulated in Lawrence Mukiri V Attorney General, [2013] eKLR, Dina Management Ltd V County Government of Mombasa, [2023] KESC 30, and Samuel Kamere V Lands Registrar, Kajiado [2015] eKLR, the purchaser has demonstrated that it acquired the property in good faith, paid valuable consideration for the purchase, was not aware of any fraud or defect in title and holds a valid and indefeasible certificate of title. Accordingly, I am satisfied that the purchaser qualifies as a bona fide purchaser for value without notice. Its title is upheld as valid and unimpeachable.
Whether the suit property was sold at an undervalue:
43. As previously stated, I reiterate that the plaintiff’s default in complying with the obligations set forth in the consent judgment dated 12th June 2006 rendered the Bank entitled to execute for the sum of Kshs. 37,472,097/= plus costs, pursuant to Clause 4 of the consent judgment. The plaintiff, however, contends that notwithstanding the consent, the property was sold at a gross undervalue, resulting in significant financial loss. To evaluate this claim, the court must carefully examine the valuation evidence presented.
44. PW2 testified that he conducted a valuation on the suit property on 24th April 2008, and assessed the market value of the property at Kshs. 19,700,000/=. He confirms that he did not include a forced sale value in his report as he was not aware that the property was scheduled for a public auction.
45. DW2, on the other hand, asserted that the valuation relied on by the defendants included both a market value and a forced sale value. The valuation set the reserve price at Kshs. 15,560,000/= and the forced sale value at Kshs. 11,750,000/=, the price at which the purchaser acquired the property. However, the said valuation report was not admitted in evidence, following the dismissal of the plaintiff’s application to introduce it as evidence after the plaintiff had testified. Consequently, the absence of the valuation report undermines the Bank’s position, as the purported valuation remains unsupported by documentary evidence and therefore cannot be accorded any probative value by the court.
46. In the absence of any credible and admissible contrary expert evidence, the plaintiff’s valuation report remains the sole evidence of the property’s market value. Consequently, the court accepts the plaintiff’s valuation, establishing the market value of the property at Kshs. 19,700,000/= as at the date of the auction. This value is only helpful in as far as it represents what the property would likely fetch under normal sale conditions. However, since the sale in question was a forced sale, having been conducted by the chargee’s statutory power of sale, the relevant benchmark for whether the price was adequate ought to be the forced sale value. Section 97(2) of the Land Act mandates that:
“a chargee shall, before exercising the right of sale, ensure that a forced sale valuation is undertaken by a valuer.”
47. In a scenario analogous to the present circumstances, Kasango J., in interpreting the requirements under the Land Act, observed as follows in Zum Zum Investment Ltd V Habib Bank Ltd [2014] eKLR:
“Section 97 (2) requires that a forced sale valuation be undertaken. The forced sale value, therefore, should be the guiding factor to the court in determining whether the intended selling price is an undervalue. In my considered view, the Plaintiff's valuation reports are not the best guide for purposes of arriving at a fair value since the same only contain the open market value and not the forced sale value of the property.”
48. The Learned Judge emphasized that the purpose of a valuation under Section 97(2) of the Land Act was to obtain the best price reasonably obtainable at the time of sale, thus protecting the chargor’s property rights and to prevent the chargee from selling the charged property at a price which is not comparable to similar land.
49. In this case, the fact that the plaintiff’s valuation report did not provide a forced sale valuation does not invalidate the report. However, as observed by Kasango J. in the Zum Zum Investment case (supra), the chargor’s claim of the property having been sold at an undervalue failed in part because the chargor’s own valuations, according to the court, “only contain the open market value and not the forced sale value”, making them an unreliable guide in assessing if the auction price was reasonable.
50. Accordingly, the plaintiff in this case has not discharged its burden merely by demonstrating a disparity between the actual purchase price and the market value of the suit property. It was incumbent upon the plaintiff’s valuation report to indicate the forced sale value, which would provide a more accurate benchmark for assessing the adequacy of the purchase price in a distressed sale context. The consequence of this omission is that the court is compelled to infer the forced sale value from the market value, applying the conventional 75per cent ratio as the guiding standard in accordance with Section 97(3) of the Land Act.
51. This statutory provision establishes that a sale price that is 25per cent or more below the market value raises a rebuttable presumption of breach, thereby providing a yardstick for determining whether the sale was conducted at a gross undervalue.
52. Section 97(3) stipulates that:
“If a charged property is sold at a price 25per cent or more below the market value for similar property at the time, there is a rebuttable presumption that the chargee is in breach of its duty under subsection (1).”
53. In my understanding, a sale at 75per cent or less of the market value constitutes prima facie evidence of an unduly low price. Conversely, even a sale above the 75per cent threshold does not automatically prove the duty was discharged; the chargee must still show it obtained the best price reasonably obtainable in the circumstances. For purposes of this case, the property was sold for Kshs. 11,750,000/= which amounts to approximately 59.6per cent of the market value, a steep discount far exceeding the 25per cent margin allowed under Section 97(3).
54. The Court therefore holds that the chargee breached its duty of care under Section 97(1) by selling the property at a gross undervalue.
Whether the plaintiff suffered any loss or damage as a result of the sale and, if so, whether he is entitled to compensation:
55. Section 99(4) of the Land Act clearly stipulates that where a chargee fails to comply with the duty of care as set out in Section 97, the chargor’s remedy lies in the recovery of damages for any proven loss. This provision underscores the principle that even where a chargee breaches its duty to obtain the best price reasonably obtainable, the validity of the title acquired by the third-party purchaser remains intact, provided that the purchaser was a bona fide purchaser for value without notice.
56. Accordingly, in this case, while the plaintiff alleges a sale at a gross undervalue and a resultant financial loss, the remedy available is not in the form of setting aside the sale or nullifying the title of the 3rd defendant, but rather in the form of damages for the quantified loss attributable to the undervalue.
57. Had the Bank adhered to Section 97(2), a proper forced sale valuation around the time of sale would presumably have put the forced sale value at roughly 75per cent of 19,700,000/=, which comes to Kshs. 14,775,000/=. This figure represents the lowest acceptable price the Bank could have reasonably sold for without violating its duty. Any sale below this benchmark is presumptively improper. By selling at Kshs. 11,750,000/=, the Bank realized Kshs. 3,025,000/= less than it should have. On the evidence, this is the portion of the plaintiff’s equity that was unjustifiably lost due to the under-sale.
Disposition
58. In conclusion, the plaintiff’s suit is successful only to the extent that this court finds that the suit property was sold at an undervalue. Judgment is therefore entered for the plaintiff against the 1st defendant for the sum of Kshs. 3,025,000/= as damages for loss together with interest thereon at court rates from the date of sale until payment in full. Since all the other prayers in the plaint are not successful, each par
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1. The plaintiff instituted the present suit through a plaint dated 10th June 2010 challenging the sale of his property L.R. No. Limuru/Ngecha/1120 (the suit property), by public auction. He seeks, inter alia, a declaration that the sale and transfer of the suit property to the 3rd defendant (the purchaser) was illegal and void; cancellation of the transfer in favor of the purchaser and any related entries in the title; a permanent injunction restraining the purchaser from interfering in any way with the property; an order to set aside the transfer and re-convey the property to him, damages for fraud; an order for the Bank to provide an accurate statement of account for the loan amongst other reliefs.
2. The plaintiff asserts that he is the registered proprietor of the suit property, a parcel of land measuring approximately 11.04 acres, developed with horticultural farming infrastructure. In 1996, he secured a loan of Kshs. 5,000,000/= from Co-operative Merchant Bank Limited, the predecessor of the 1st defendant Bank, by executing a charge over the suit property.
The plaintiff’s case:
3. The plaintiff contends that the terms of the charge were not adequately explained to him and that he did not receive a copy of the charge instrument. Despite commencing repayment, the Bank, having assumed the charge, filed HCCC No. 508 of 2003, demanding an amount of Kshs. 22,757,181.45, inclusive of interest at 30per cent per annum. The plaintiff asserts that the demand was unlawful, exaggerated, and intended to clog his equity of redemption.
4. Subsequently, due to what he terms as pressure, the parties entered into a consent judgment in which the plaintiff was to pay Kshs. 9.1 million in installments. He avers that despite adhering to the payment schedule, the Bank advertised the property for sale on 29th April 2008 and again on 20th May 2008, prompting him to file HCCC No. 265 of 2008 seeking injunctive relief. The court granted an interim order on condition that the plaintiff deposits Kshs. 4 million in court within 21 days, but the sale proceeded while he was seeking an extension of time to comply with the court order.
5. The plaintiff claims that the sale to the purchaser was fraudulent, alleging that no proper statutory notice was served, no auction took place as advertised, and no valuation was conducted. He asserts that the property was sold at a gross undervalue of Kshs. 11,950,000/= despite its market value being Kshs. 19,000,000/=. Further, he alleges that there was collusion between the defendants to deprive him of the property. He contends that the purchaser did not pay the required 25per cent deposit at the fall of the hammer.
6. He also draws the court’s attention to Legal Notice No. 52 of 2007, which operationalized section 44A of the Banking Act, introducing limitations on recoverable amounts in respect of non-performing loans. He claims that the Bank failed to determine or disclose when the loan became non-performing and thus acted in breach of the law by purporting to sell the property.
7. Following the transfer of the property to the purchaser, the plaintiff contends that he was evicted, resulting in a loss of income of Kshs. 7,874,770 from damaged crops.
The defendants’ case:
8. The Bank and the 2nd defendant (the auctioneer) have opposed the suit vide a statement of defence dated 22nd July 2010, asserting that the sale of the suit property to the purchaser was lawful and that he is the registered proprietor. They admit that the plaintiff obtained a loan of Kshs. 5,000,000/=, secured by a charge over the suit property, and confirm that the plaintiff executed the charge and was provided with a copy of the charge instrument.
9. The defendants acknowledge that as of 4th April 2002, the outstanding loan balance was Kshs. 22,757,181.45, attributed to the plaintiff’s default. They deny that the sum was inflated or intended to fetter the plaintiff’s equity of redemption. They further deny exerting undue pressure on the plaintiff during the negotiation of the consent in HCCC No. 508 of 2003, asserting that the plaintiff voluntarily initiated the negotiations.
10. The Bank contends that the plaintiff defaulted on the consent agreement, thereby causing the judgment amount to revert to the original debt. They reject the claim that the advertisement for the auction was unlawful, maintaining that the Bank properly exercised its statutory power of sale due to the plaintiff’s persistent default.
11. Regarding HCCC No. 265 of 2008, the defendants argue that the plaintiff obtained injunctive orders deceitfully, which were subsequently vacated due to non-compliance. They deny any conspiracy, fraud, or illegality in the sale and contend that the allegations of collusion are unfounded. The Bank also disputes the plaintiff’s claim for Kshs. 7,874,770/= as damages for lost crops, asserting that the plaintiff was not unlawfully evicted from the property. Additionally, the Bank denies any breach of Section 44A of the Banking Act, maintaining that the loan was not subject to the limitations prescribed therein.
12. On its part the purchaser contends that it is the lawful owner of the suit property, having purchased it as a bona fide purchaser for value at a public auction conducted by the Bank in exercise of its statutory power of sale. The purchaser denies the plaintiff’s claims of fraud and conspiracy, asserting that the auction was legally conducted and that it had no prior relationship with the Bank or the auctioneers.
13. The purchaser further denies that any court order was in force at the time of the purchase that would have restrained the sale. It maintains that the plaintiff has no legal basis to demand entry or access to the property, arguing that such claims would infringe upon its proprietary rights. The purchaser also asserts that the present suit is res judicata, as the issues raised were addressed and conclusively determined in HCCC No. 508 of 2003 and HCCC No. 265 of 2008. It characterizes the current suit as vexatious, frivolous, and an abuse of the court process, urging the court to dismiss it with costs.
The Hearing:
14. At the hearing the plaintiff testified as PW1 and called an additional witness, Pius Khaoya, the author of the valuation report dated 24th April 2008 as PW2. The Bank and the auctioneer called the 2nd defendant, a licensed auctioneer as DW1 while DW2 was David Mwangi, an employee of the Bank. The purchaser called 1 witness, Joseph Muchiri Kihanya, a director of Bueri Limited, the purchaser. I will not reiterate the full details of their testimonies, which align with the facts already summarized, but I will refer to relevant parts of their evidence in the analysis where needed.
Analysis and determination
15. Upon conclusion of the hearing the parties filed their respective submissions which I have carefully considered alongside the pleadings and evidence presented. The following issues arise for determination:
i. Whether the present suit is res judicata in light of previous proceedings in HCCC Nos. 508 of 2003.
ii. Whether the consent judgment in HCCC No. 508 of 2003 extinguished the 1st defendant’s statutory power of sale.
iii. Whether the 1st defendant lawfully exercised its statutory power of sale over L.R. LIMURU/NGECHA/1120.
iv. Whether the sale and transfer of the suit property to the 3rd defendant was fraudulent, irregular, or unlawful.
v. Whether the 3rd defendant was a bona fide purchaser for value without notice.
vi. Whether the plaintiff suffered any loss or damage as a result of the sale and, if so, whether he is entitled to compensation.
vii. Whether the consent judgment in HCCC No. 508 of 2003 extinguished the 1st defendant’s statutory power of sale.
Whether the present suit is res judicata in light of previous proceedings in HCCC Nos. 508 of 2003 and 265 of 2008:
16. The doctrine of res judicata is anchored in Section 7 of the Civil Procedure Act, which provides that:
"No court shall try any suit or issue in which the matter directly and substantially in issue has been directly and substantially in issue in a former suit between the same parties, or between parties under whom they or any of them claim, litigating under the same title, in a court competent to try such subsequent suit or the suit in which such issue has been subsequently raised, and has been heard and finally decided by such court."
17. The rationale underlying this provision is to bring finality to litigation and prevent the same parties from re-litigating the same issue, thereby conserving judicial resources and upholding the principle of certainty in legal proceedings. In Kenya Commercial Bank Limited V Benjoh Amalgamated Limited & Another, [2017] eKLR, the Court of Appeal emphasized that for the plea of res judicata to succeed, the following elements must be established conjunctively:
i. The matter in issue must be directly and substantially in issue in the former suit and the current suit;
ii. The parties in the two suits must be the same or litigating under the same title;
iii. The court that determined the former suit must have been competent to try the subsequent suit; and
iv. The matter in issue must have been finally determined by the court.
18. There is no doubt that the amount of litigation undertaken by the parties herein has been enormous and unrelenting. It is not the first time that this court has invoked the doctrine of res judicata. Considering the protracted nature of the litigation, it is unsurprising that issues previously canvassed and determined by other courts have repeatedly resurfaced for adjudication.
19. The first issue for determination is whether the consent judgment in HCCC No. 508 of 2003 extinguished the Bank’s statutory power of sale. Upon a thorough examination of the ruling delivered in HCCC No. 265 of 2008 on 18th September 2009 by M.K. Koome, J. (as she then was), it is apparent that the plaintiff, the Bank, and the purchaser were all parties to that suit, and the subject matter of the dispute was the same suit property currently before this court. Similarly, the consent judgment in HCCC No. 508 of 2003 involved the same parties and was centered on the same suit property now under consideration.
20. In addressing the question of whether the consent order in HCCC No. 508 of 2003 effectively extinguished the Bank’s statutory power of sale, the court pronounced itself as follows:
“The plaintiff contends that the first defendant’s right to redemption by way of the exercise of the chargee’s power of sale was extinguished by that consent order. I have read the consent order and, with tremendous respect, the consent order did not discharge the charge over the suit premises. If the plaintiff had complied with the consent order and paid the sum agreed, that argument would hold.” (emphasis added).
21. The court further elaborated as follows:
“In this case, the plaintiff admits having defaulted in the loan repayment. He failed to comply with a consent order; he comes to court and obtains an order of injunction on conditions which he does not comply with. Is he entitled to an equitable relief by way of an order of injunction? I am afraid the plaintiff is not entitled to an equitable relief…” The Bank, under the terms of the lending, was entitled to realize the charged property to recover the loan… (emphasis added)
The plaintiff’s claim is that the 1st defendant did not have the statutory power of sale and that the property was sold illegally. Bearing in mind that the plaintiff defaulted in loan repayment, I am afraid he has not established a prima facie case with a probability of success.”
22. From the foregoing, the court unequivocally held that upon the plaintiff’s default in complying with the consent judgment, the Bank’s statutory power of sale was revived and remained enforceable. The learned Judge underscored that the terms of the charge were reinstated upon the plaintiff’s default, thereby entitling the Bank to exercise its power of sale over the suit property. The sentiments of the Judge were noted and upheld in yet another Ruling dated 4th November 2011 (Njagi, J) equally emphasizing that the matters were res judicata.
23. Consequently, I concur with the Bank’s position that the issue of whether the statutory power of sale was extinguished by the consent judgment is res judicata, having been conclusively determined in HCCC No. 265 of 2008. No further finding is warranted on this issue.
Whether the sale and transfer of the suit property to the 3rd defendant was fraudulent, irregular, or unlawful:
24. Regarding this second issue, I have carefully reviewed the aforementioned ruling delivered by Koome, J. and I am satisfied that the court conclusively addressed this matter by stating as follows:
“The other issue for consideration is whether the property was sold in fragrant disobedience of the court order issued on 20th May, 2008. The defendant contends that the transfer was signed on 26th June, 2008 and given to the second defendant who was not a party to this suit. I have gone through the records, I see an affidavit by the auctioneer who says that he conducted the auction on 20th May, 2008 and the property was sold at 11.00 am and he was served with an order of injunction at 1.55 pm on the same day after he had conducted the sale. The transfer itself was registered at the lands office on 10th July, 2008. On the 10th of July 2008, the second defendant was not a party to this suit when an order of status quo was issued.
One also needs to understand what was; the status quo on the 10th July 2008 regarding the suit premises. If the plaintiff’s claim is that there was a b[r]each of a court order, then this is a matter which could have been appropriately dealt with by way of an application for contempt of court. On the face of the record, I am not able to establish that the transfer was effected in contravention of a court order.” (emphasis added)
25. The plaintiff now contends that the sale was irregular and fraudulent, alleging new grounds, inter alia, the lack of a proper statutory notice and the absence of a public auction. These are matters that were well within the plaintiff’s knowledge at the time, and are directly related to the issues under consideration by the court when it sought the interlocutory relief but were conspicuously not raised at that stage. If the plaintiff genuinely believed that the statutory notice had not been served or that a public auction had not been conducted, the appropriate time to canvass such issues was during that stage when the issue was first brought to the attention of the court.
26. The failure to do so raises the question as to why these purported irregularities were not addressed earlier, especially given that the plaintiff was actively participating in the proceedings and had the opportunity to raise them. The doctrine of res judicata, as codified under Section 7 of the Civil Procedure Act, extends not only to issues that were actually raised and determined but also to those that could and ought to have been raised in the earlier proceedings.
27. This principle was aptly stated in Henderson V Henderson, (1843) 3 Hare 100, where it was held that:
"The court requires the parties to bring forward the whole case, and will not permit the same party to open the same subject of litigation in respect of a matter which might have been brought forward as part of the subject in contest, but which was omitted through negligence, inadvertence, or even accident." (emphasis added)
28. In the present case, the failure by the plaintiff to wholly challenge the propriety of the sale process, including the issuance of statutory notices and conduct of the public auction, at the previous hearings, only to raise such matters during the substantive hearing, smacks of an attempt to litigate piecemeal, an approach that the doctrine of res judicata was specifically designed to prevent.
29. The Court of Appeal in E.T. V Attorney General & Another, [2012] eKLR reaffirmed this position, holding that a party cannot raise in subsequent proceedings issues that were within its knowledge but were not canvassed in prior litigation. The Court of Appeal warned that:
“Courts must always be vigilant to guard against litigants evading the doctrine of res judicata by introducing new causes of action so as to seek the same remedy before the court. The test is whether the plaintiff is in the second suit is trying to bring before the court in another way and in a form a new cause of action which has been resolved by a court of competent jurisdiction”. (emphasis added)
30. Interestingly, the observation made by this court in HCCC No. 265 of 2008 confirms that indeed, the issues now raised were not in issue at the earlier litigation. The court observed as follows:
“The plaintiff’s complaint as I understand it has nothing to do with the issuance of the statutory notices and the requirements for advertisement … failure to conduct a valuation prior to the sale, and non-payment of the deposit by the purchaser at the fall of the hammer. He further contends that the sale occurred in disregard of a court order and that the transfer was conducted secretly and in haste.”
31. Accordingly, I find that the allegations of lack of statutory notice and absence of a public auction are matters that ought to have been canvassed earlier. Their re-introduction at this stage amounts to an abuse of the court process, and the doctrine of res judicata bars such belated attempts to re-litigate matters previously within the plaintiff’s knowledge.
32. In any case, upon reviewing the evidence, it is clear that the required notices were served and some are contained in the plaintiff’s own bundle of documents. The prayer for statement of accounts in relation to the loan account is moot as the Bank filed the same even though the same were not admitted into evidence.
Whether the 3rd defendant was a bona fide purchaser for value without notice:
33. Upon perusing the decisions on record, I note that this issue was not addressed in any of the previous determinations. In assessing whether the purchaser qualifies as a bona fide purchaser for value without notice, the court is guided by established jurisprudence.
34. The Supreme Court in Dina Management Limited V County Government of Mombasa & 5 Others, [2023] KESC 30 (KLR) adopted the definition of a bona fide purchaser as provided in Black’s Law Dictionary (9th Ed), which emphasizes that a bona fide purchaser is one who acquires property by paying valuable consideration without notice of any prior claim, and without actual or constructive notice of any defects in the title.
35. Similarly, the Court of Appeal in Uganda in Katende v Haridar & Company Ltd, [2008] 2 EA 173 outlined the requirements for establishing bona fides, emphasizing the absence of fraud or notice thereof and the purchaser’s good faith acquisition.
36. In Lawrence Mukiri V Attorney General & 4 Others, [2013] eKLR, the court provided a comprehensive definition of a bona fide purchaser for value without notice, outlining the essential elements which are that the purchaser holds a certificate of title; that the purchase was made in good faith; that the purchaser had no knowledge of any fraud; that the vendors held apparent valid title; that the purchase was made without notice of any fraud; and that the purchaser was not a party to any fraud.
37. Finally, in Samuel Kamere V Lands Registrar, [2015] eKLR, the Court stressed that a bona fide purchaser must demonstrate acquisition of a valid and legal title; performance of necessary due diligence to ascertain lawful ownership; and payment of valuable consideration.
38. The evidence on record confirms that the auction for the suit property was publicly advertised in the Daily Nation Newspaper on 5th May 2008, indicating that the sale of the suit property was scheduled for 20th May 2008 at 11:00 am at the auctioneer’s offices.
39. The purchaser produced three (3) receipts issued by the auctioneer on the day of the auction, reflecting payments totaling Kshs. 2,987,500/=, representing 25per cent deposit of the purchase price. This evidence corroborates DW3’s testimony that the purchaser complied with the payment terms stipulated for auction sales.
40. The purchaser additionally produced a letter of offer confirming that it was advanced a facility of Kshs. 12,500,000/= specifically for the acquisition of the suit property. This evidence substantiates the purchaser’s assertion that valuable consideration was paid through a legitimate financial facility, negating any suggestion that the acquisition was contrived or without consideration.
41. No evidence has been presented by the plaintiff to demonstrate that the purchaser was aware of any insufficiency in the purchase price or that he had reason to suspect that the property was being sold at a gross undervalue. A bona fide purchaser for value without notice is entitled to protection unless it can be demonstrated that he was aware, or ought to have been aware, of the inadequacy of the purchase price or any irregularities in the sale process. In the absence of such evidence, I am not persuaded that the purchaser’s conduct was anything other than that of a bona fide purchaser acting in good faith, having duly paid the required consideration at the fall of the hammer.
42. I note that the purchaser holds a valid certificate of title to the suit property, issued following the auction, and no evidence has been presented to impeach the legitimacy of that title. In accordance with the principles articulated in Lawrence Mukiri V Attorney General, [2013] eKLR, Dina Management Ltd V County Government of Mombasa, [2023] KESC 30, and Samuel Kamere V Lands Registrar, Kajiado [2015] eKLR, the purchaser has demonstrated that it acquired the property in good faith, paid valuable consideration for the purchase, was not aware of any fraud or defect in title and holds a valid and indefeasible certificate of title. Accordingly, I am satisfied that the purchaser qualifies as a bona fide purchaser for value without notice. Its title is upheld as valid and unimpeachable.
Whether the suit property was sold at an undervalue:
43. As previously stated, I reiterate that the plaintiff’s default in complying with the obligations set forth in the consent judgment dated 12th June 2006 rendered the Bank entitled to execute for the sum of Kshs. 37,472,097/= plus costs, pursuant to Clause 4 of the consent judgment. The plaintiff, however, contends that notwithstanding the consent, the property was sold at a gross undervalue, resulting in significant financial loss. To evaluate this claim, the court must carefully examine the valuation evidence presented.
44. PW2 testified that he conducted a valuation on the suit property on 24th April 2008, and assessed the market value of the property at Kshs. 19,700,000/=. He confirms that he did not include a forced sale value in his report as he was not aware that the property was scheduled for a public auction.
45. DW2, on the other hand, asserted that the valuation relied on by the defendants included both a market value and a forced sale value. The valuation set the reserve price at Kshs. 15,560,000/= and the forced sale value at Kshs. 11,750,000/=, the price at which the purchaser acquired the property. However, the said valuation report was not admitted in evidence, following the dismissal of the plaintiff’s application to introduce it as evidence after the plaintiff had testified. Consequently, the absence of the valuation report undermines the Bank’s position, as the purported valuation remains unsupported by documentary evidence and therefore cannot be accorded any probative value by the court.
46. In the absence of any credible and admissible contrary expert evidence, the plaintiff’s valuation report remains the sole evidence of the property’s market value. Consequently, the court accepts the plaintiff’s valuation, establishing the market value of the property at Kshs. 19,700,000/= as at the date of the auction. This value is only helpful in as far as it represents what the property would likely fetch under normal sale conditions. However, since the sale in question was a forced sale, having been conducted by the chargee’s statutory power of sale, the relevant benchmark for whether the price was adequate ought to be the forced sale value. Section 97(2) of the Land Act mandates that:
“a chargee shall, before exercising the right of sale, ensure that a forced sale valuation is undertaken by a valuer.”
47. In a scenario analogous to the present circumstances, Kasango J., in interpreting the requirements under the Land Act, observed as follows in Zum Zum Investment Ltd V Habib Bank Ltd [2014] eKLR:
“Section 97 (2) requires that a forced sale valuation be undertaken. The forced sale value, therefore, should be the guiding factor to the court in determining whether the intended selling price is an undervalue. In my considered view, the Plaintiff's valuation reports are not the best guide for purposes of arriving at a fair value since the same only contain the open market value and not the forced sale value of the property.”
48. The Learned Judge emphasized that the purpose of a valuation under Section 97(2) of the Land Act was to obtain the best price reasonably obtainable at the time of sale, thus protecting the chargor’s property rights and to prevent the chargee from selling the charged property at a price which is not comparable to similar land.
49. In this case, the fact that the plaintiff’s valuation report did not provide a forced sale valuation does not invalidate the report. However, as observed by Kasango J. in the Zum Zum Investment case (supra), the chargor’s claim of the property having been sold at an undervalue failed in part because the chargor’s own valuations, according to the court, “only contain the open market value and not the forced sale value”, making them an unreliable guide in assessing if the auction price was reasonable.
50. Accordingly, the plaintiff in this case has not discharged its burden merely by demonstrating a disparity between the actual purchase price and the market value of the suit property. It was incumbent upon the plaintiff’s valuation report to indicate the forced sale value, which would provide a more accurate benchmark for assessing the adequacy of the purchase price in a distressed sale context. The consequence of this omission is that the court is compelled to infer the forced sale value from the market value, applying the conventional 75per cent ratio as the guiding standard in accordance with Section 97(3) of the Land Act.
51. This statutory provision establishes that a sale price that is 25per cent or more below the market value raises a rebuttable presumption of breach, thereby providing a yardstick for determining whether the sale was conducted at a gross undervalue.
52. Section 97(3) stipulates that:
“If a charged property is sold at a price 25per cent or more below the market value for similar property at the time, there is a rebuttable presumption that the chargee is in breach of its duty under subsection (1).”
53. In my understanding, a sale at 75per cent or less of the market value constitutes prima facie evidence of an unduly low price. Conversely, even a sale above the 75per cent threshold does not automatically prove the duty was discharged; the chargee must still show it obtained the best price reasonably obtainable in the circumstances. For purposes of this case, the property was sold for Kshs. 11,750,000/= which amounts to approximately 59.6per cent of the market value, a steep discount far exceeding the 25per cent margin allowed under Section 97(3).
54. The Court therefore holds that the chargee breached its duty of care under Section 97(1) by selling the property at a gross undervalue.
Whether the plaintiff suffered any loss or damage as a result of the sale and, if so, whether he is entitled to compensation:
55. Section 99(4) of the Land Act clearly stipulates that where a chargee fails to comply with the duty of care as set out in Section 97, the chargor’s remedy lies in the recovery of damages for any proven loss. This provision underscores the principle that even where a chargee breaches its duty to obtain the best price reasonably obtainable, the validity of the title acquired by the third-party purchaser remains intact, provided that the purchaser was a bona fide purchaser for value without notice.
56. Accordingly, in this case, while the plaintiff alleges a sale at a gross undervalue and a resultant financial loss, the remedy available is not in the form of setting aside the sale or nullifying the title of the 3rd defendant, but rather in the form of damages for the quantified loss attributable to the undervalue.
57. Had the Bank adhered to Section 97(2), a proper forced sale valuation around the time of sale would presumably have put the forced sale value at roughly 75per cent of 19,700,000/=, which comes to Kshs. 14,775,000/=. This figure represents the lowest acceptable price the Bank could have reasonably sold for without violating its duty. Any sale below this benchmark is presumptively improper. By selling at Kshs. 11,750,000/=, the Bank realized Kshs. 3,025,000/= less than it should have. On the evidence, this is the portion of the plaintiff’s equity that was unjustifiably lost due to the under-sale.
Disposition
58. In conclusion, the plaintiff’s suit is successful only to the extent that this court finds that the suit property was sold at an undervalue. Judgment is therefore entered for the plaintiff against the 1st defendant for the sum of Kshs. 3,025,000/= as damages for loss together with interest thereon at court rates from the date of sale until payment in full. Since all the other prayers in the plaint are not successful, each par
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