1. This ruling is in respect to two applications. The first application is the plaintiffs’ Notice of Motion dated 22nd November, 2023 filed pursuant to the provisions of Sections 1A, 3A, 22 & 63(e) of the Civil Procedure Act, Order 41 Rules 1 & 10 and Order 51 Rule 1 of the Civil Procedure Rules, 2010, Rule 10 of the Auctioneers Rules 1997, and all other enabling provisions of the law relevant to an application of this nature, seeking inter alia for orders that this Court sets aside, annuls, and/or cancels both the Certificate & Memorandum of Sale in this matter by Nairobi Channels Auctioneers dated 22nd August, 2023.
2. The application is premised on the grounds on the face of the Motion and is supported by an affidavit sworn on the same day by David Kabubii Kuria, the 4th plaintiff herein and a Director of the 1st, 7th & 8th plaintiff companies. He contended that the selling of the suit property for Kshs.230,000,000/= was a significant undervaluation, inconsistent with previous valuations, current value, or market value. He noted that the defendants had set a forced sale value of Kshs. 308,000,000/= for the suit property, but they assert that they failed to achieve it, hence the suit property was sold to the highest bidder. He contended that according to an independent valuation that the plaintiffs conducted recently, the suit property’s current market value is Kshs.600,000,000/=, with a forced sale value of Kshs.450,000,000/=. Mr. Kuria asserted that the auction on 22nd August, 2023 was illegal because the defendants had not conducted a forced sale valuation as required by Section 97(2) of the Land Act, and that Peter Birugu was the only bidder, and as the highest bidder, he purchased the suit property at a price significantly below its current market value.
3. In opposition to the application, the defendant filed a replying affidavit sworn on 29th February, 2024 by Andrew Muchina, the 1st defendant’s Senior Legal Manager. He confirmed that as at 26th June, 2023, the forced sale value of the suit property was Kshs.308,000,000/=, and averred that the plaintiffs had not tendered any evidence to demonstrate that the open market value of the suit property is Kshs.600,000,000/=. He further averred that when a charged property is sold at an auction, the price is based on the forced sale value not the open market value. He stated that in this case, despite several attempts to sell the suit property at a public auction, the 1st defendant was unable to reach the forced sale value. He said for instance, the highest bids made at the auctions held on 30th October, 2019 and 28th February, 2020 were Kshs.200,000,000/=, and for the auction held on 1st February, 2023 the highest bid was Kshs.100,000,000/=.
4. Mr. Muchina stated that despite the foregoing, the 1st defendant successfully sold the suit property on 22nd August, 2023 to Peter Birugu Gachugu for Kshs.220,000,000/=, which he described as the best reasonably obtainable price. He asserted that the 1st defendant is willing to settle the dispute herein by accepting the sale proceeds of Kshs.220,000,000/= as full and final settlement. He contended that the plaintiff\'s application is res judicata, as applications seeking similar orders as the ones sought in the plaintiffs’ application made on 19th January, 2019, 5th February, 2020, 8th February, 2020 and 3rd March, 2020 were dismissed in rulings delivered on 27th February, 2020 and 18th May, 2020 for failure to establish a prima facie case.
5. He contended that the plaintiff’s suit should be struck out as it does not disclose a reasonable cause of action against the defendants, and that it is frivolous and vexatious. He noted that the plaintiffs had admitted the debt, and as was held by the Court in its ruling delivered on 18th May, 2020, the plaintiffs had acknowledged the default, and promised to repay the loan but failed to do so. He stated that even if the suit property had been sold at either the open market value or forced sale value, the proceeds of the sale would still not be sufficient to repay the entire loan, as the loan amount has outstripped the value of the security held by the 1st defendant.
6. The 2nd application is the 1st defendant’s Notice of Motion dated 29th February, 2024 filed pursuant to the provisions of Sections 1A, 1B, 3A & 7 of the Civil Procedure Act, Sections 104(1)(a), (2)(c) & (d) of the Land Act, 2012, Order 40 Rule 7 & Order 2 Rule 15 of the Civil Procedure Rules, 2010, and all other enabling provisions of the law. The 1st defendant seeks inter alia, for orders for sanctioning and/or ratification of the auction sale conducted on 22nd August, 2023 whereby the charged property Title Number Limuru/Kamirithu/4504 was sold to Mr. Peter Birugu Gachugu at Kshs.220,000,000/=, an order that the charged property be forthwith transferred and registered in the name of the purchaser, Mr. Peter Birugu Gachugu, and in the alternative, that the plaintiff’s suit be struck out and judgment be entered in favour of the defendants as prayed in the further amended defence and counter-claim.
7. The application is premised on the grounds on the face of the Motion and is supported by an affidavit sworn on the same day by Andrew Muchina, the 1st defendant’s Senior Legal Manager. He averred that the suit property should be transferred to Mr. Peter Birugu Gachugu since the loan facility has outstripped the value of the security held by the 1st defendant. He noted that the amount secured by the charged property is Kshs.450,000,000/=, whereas the total outstanding loan amount as at 2nd February, 2024 was Kshs.1,099,130,152.07. He stated that even if the suit property was sold at either the open market value or forced sale value, the proceeds of the sale would still not be sufficient to repay the entire loan.
8. Mr. Muchina stated that before accepting the bid of Kshs.220,000,000/= for the suit property, the price was communicated to the plaintiffs vide a letter dated 29th November, 2023, which letter also requested them to accept the price as the final settlement of the matter. He averred that the plaintiffs’ suit should be struck out as it does not disclose a reasonable cause of action against the defendants, and that it is frivolous and vexatious. He asserted that the plaintiffs had admitted the debt, as was held by the Court in its ruling delivered on 18th May, 2020 and that they had acknowledged the default, and promised to repay the loan but failed to do so. He urged this Court to strike out the plaintiff’s suit and enter judgment for the 1st defendant in the sum of Kshs.1,099,130,152.07 in the event that the auction sale was not ratified.
9. The applications herein were canvassed by way of written submissions which were highlighted on 29th July, 2024. The plaintiffs’ submissions were filed by the law firm of San Advocates Kenya on 22nd June, 2024, whereas the defendants’ submissions were filed by the law firm of Wamae & Allen LLP on 2nd May, 2024.
10. Mr. Sichangi, learned Counsel for the plaintiffs cited the provisions of Sections 97(1), (2) & (3) and 98 of the Land Act and submitted that since the plaintiffs have demonstrated that the 1st defendant breached its duties in the conduct and sale of the suit property by public auction, the purported sale should be declared void. He further submitted that Section 104 of the Land Act cannot be invoked for this Court to cure and/or ignore an illegality.
11. Mr. Mutugi, learned Counsel for the defendants submitted that the plaintiffs\' application is res judicata, as similar applications made on 19th January, 2019, 5th February, 2020, 8th February, 2020, and 3rd March, 2020 were dismissed in rulings delivered on 27th February, 2020 and 18th May, 2020 for failure to establish a prima facie case. He noted that the plaintiffs seek to restrain the 1st defendant from exercising its statutory power of sale, but the said prayer cannot be granted, as the Court in a ruling delivered on 18th May, 2020 held that the 1st defendant\'s power of sale could not be restrained. Counsel stated that the said ruling has not been successfully appealed, reviewed, and/or set aside. He relied on the case of Telkom Kenya Limited v John Ochanda (Suing on his own behalf and on behalf of 996 former employees of Telkom Kenya Limited [2014] eKLR, and contended that this Court is functus officio regarding the plaintiff\'s’ application for an injunction.
12. He cited the provisions of Section 104(1)(a) of the Land Act and asserted that this Court has the authority to ratify the auction sale held on 22nd August, 2023 to prevent further reduction in the value of the property. He contended that since the loan balance now exceeds the value of the security, ratifying the sale would protect the property\'s value, noting that the last bid on 1st February, 2023 was Kshs.100,000,000/=. Counsel referred to the provisions of Sections 104(2)(c) & (d) of the Land Act and stated that the defendants are unable to sell the suit property at the required forced sale value of Kshs.308,000,000/=.
13. He urged this Court to ratify the auction sale held on 22nd August, 2023 and order for the transfer of the property to the highest bidder, asserting that any auction errors do not negate this Court’s authority to grant such orders. To support his argument, Mr. Mutugi relied on the decisions in Ecobank Kenya Limited v First Choice Mega Stores Limited [2018] eKLR, and Ecobank Kenya Limited v Moru Ridge Limited & another [2020] eKLR. Additionally, Mr. Muchina referred to the decisions made in the County Council of Nandi v Ezekiel Kibet Rutto & 6 others [2013] eKLR, and Trust Bank Limited v H.S. Amin & Company Limited & another [2000] eKLR. He called for the dismissal of this suit on the ground that it is an abuse of the Court process.
14. In a rejoinder, Mr. Sichangi submitted that the plaintiffs’ application is not res judicata since it has been filed post sale of the suit property, and it challenges the legality of the sale. He further submitted that the defendants had not produced a Valuation Report which was done within a year to the sale, to demonstrate that they complied with the requirements of Sections 97 & 98 of the Land Act. He asserted that the plaintiffs did not consent to the sale of the suit property at Kshs.220,000,000/= for the 1st defendant to write off the balance of the outstanding amount. Counsel contended that the amount disbursed by the 1st defendant was between Kshs.420,000,000/= to Kshs.440,000,000/= plus interest.
ANALYSIS AND DETERMINATION
15. I have considered the applications filed herein, and the affidavits filed in support thereof. I have also considered the replying affidavit by the defendants and the written submissions by Counsel for the parties. The issues that arise for determination are –
i) Whether the plaintiffs’ application for injunction is res judicata;
ii) Whether the plaintiffs have made out a case for setting aside of the Certificate and Memorandum of Sale in this matter by Nairobi Channels Auctioneers, the 2nd defendant herein, dated 22nd August, 2023;
iii) Whether this Court should ratify the auction sale conducted on 22nd August, 2023 whereby the suit property was sold for Kshs.220,000,000/=; and
iv) Whether the plaintiffs’ suit should be struck out and judgment entered in favour of the defendants as prayed in the further amended defence & counter-claim.
Whether the plaintiffs’ application for injunction is res judicata.
16. The defendants are challenging the plaintiffs’ application for injunction on the grounds that the order sought is res judicata. On perusal of the orders sought in the plaintiffs’ application, it is however evident that the prayers for injunction under prayer Nos. 2 & 3 are spent since they read “pending inter partes hearing and pending the determination by way of a ruling of this instant application”. This Court will therefore not dwell on an issue that is already spent.
Whether the plaintiffs have made out a case for setting aside of the Certificate & Memorandum of Sale in this matter by Nairobi Channels Auctioneers, the 2nd defendant herein, dated 22nd August, 2023.
17. The suit property in issue was sold at a public auction held on 22nd August, 2023 for Kshs.220,000,000/=, which value was below its forced sale value. The plaintiffs’ contention is that the said sale by auction was illegal for failure to comply with the provisions of Section 97(2) of the Land Act and should therefore be set aside. Section 97(2) of the Land Act states that –
A chargee shall, before exercising the right of sale, ensure that a forced sale valuation is undertaken by a valuer.
18. Annexed to the plaintiffs’ affidavit in support of the application dated 22nd November, 2023, is a letter dated 22nd November, 2023 addressed to the 1st plaintiff by Proficient Valuers Limited, stating that the current market value of the suit property is Kshs.600,000,000/=. It is however worth noting that the said letter is not accompanied by a Valuation Report to show how the said Valuers arrived at the figure of Kshs.600,000,000/=. Further, in as much as the said Valuers indicated in their letter that they were in the process of finalizing the Report, to date the plaintiffs have not produced the said Report in Court to corroborate the allegation that the current market value of the suit property is Kshs. 600,000,000/=.
19. The defendants on the other hand produced a Valuation Report dated 26th June, 2023 prepared by Coral Property International Limited that shows that as at 26th June, 2023, the suit property had a market value of Kshs.411,000,000/= and a forced sale value of Kshs.308,000,000/=. As stated before in this ruling the suit property was sold in an auction held on 22nd August, 2023, which is approximately two (2) months after valuation of the suit property was done. It is therefore my finding that the defendants complied with the provisions of Section 97(2) of the Land Act before selling the suit property.
20. From the foregoing, it is evident that the suit property was sold below its forced sale value of Kshs.308,000,000/=, as it was sold for Kshs.220,000,000/=. The defendants contended that they made several attempts to sell the suit property by public auction but all the bids made failed to meet the forced sale value. For instance, the defendants have demonstrated by way of letters addressed to them by the Auctioneers they had instructed to sell the suit property by way of public auction, that the highest bids at the auctions held on 30th October, 2019 and 28th February, 2020 were Kshs.200,000,000/=, and the highest bid for the auction held on 1st February, 2023 was Kshs.100,000,000/=.
21. They have also demonstrated by way of statements of accounts that even if the current market value of the suit property is Kshs.600,000,000/=, the balance of the outstanding loan amount which as at 2nd February, 2024 stood at Kshs.1,099,130,152.07 has outstripped the value of the security held, which is the suit property. Therefore, even if the suit property was to be sold at Kshs.600,000,000/=, the proceeds of the sale would still be insufficient to clear the outstanding loan balance owed to the 1st defendant by the plaintiffs.
22. Section 97(1) of the Land Act provides that –
A chargee who exercises a power to sell the charged land, including the exercise of the power to sell in pursuance of an order of a court, owes a duty of care to the chargor, any guarantor of the whole or any part of the sums advanced to the chargor, any chargee under a subsequent charge or under a lien to obtain the best price reasonably obtainable at the time of sale.
23. On the other hand, Section 98 of the Land Act states that –
If a chargee or a receiver becomes entitled to exercise the power of sale, that sale may be -
a) of the whole part of the charged land;
b) subject to or free of any charge or other encumbrance or charge having priority to the chargee\'s charge;
c) by way of subdivision or otherwise;
d) by private contract at market value;
e) public auction with reserve price… (Emphasis added).
24. From the foregoing, it is trite that if a charged property is sold by private treaty by a chargee exercising its statutory power of sale over the property, then it can only be sold for a value not less than its current market value, but if the said sale is by way of public auction, it can only be sold for a value not less than its forced sale value. In the absence of any other Valuation Report, I am persuaded that as at 26th June, 2023, the suit property had a market value of Kshs.411,000,000/= and a forced sale value of Kshs.308,000,000/=. However, noting that the outstanding loan balance has outstripped the value of the security, and that the plaintiffs have not demonstrated any attempts and/or steps taken towards settling the outstanding loan balance, the sale of the suit property was the only viable option available to the 1st defendant to recover some of its monies and to reduce its exposure.
25. Further, the defendants have also demonstrated that they had previously made three attempts to sell the suit property by public auction but they were not successful since all the bids made at the said auctions were way below the suit property’s forced sale value. In the circumstances, I am satisfied that the defendants were justified to accept the bid of Kshs.220,000,000/= for the suit property, so as to recover some of its monies considering that the plaintiffs have been unable to repay the loan amount which continues to accrue interest.
26. Given the said facts, this Court finds that the plaintiffs have not made out a case to warrant nullification of the sale of the suit property and the setting aside of the Certificate & Memorandum of Sale by Nairobi Channels Auctioneers, the 2nd defendant herein dated 22nd August, 2023.
Whether this Court should ratify the auction sale conducted on 22nd August, 2023 whereby the suit property was sold for Kshs 220,000,000/=.
27. The defendants cited the provisions of Section 104(1)(a) of the Land Act and submitted that it gives this Court the power to sanction and/or ratify the sale of the suit property in an auction held on 22nd August, 2023 at Kshs.220,000,000/=, which value is below the suit property’s forced sale value. Section 104(1) (a) of the Land Act provides that -
In considering whether to grant relief as applied for, a court -
a) shall, have regard to whether the remedy which the chargee proposes to exercise is reasonably necessary to prevent any or any further reduction in the value of the charged land or to reverse any such reduction as has already occurred if the charged land consists of agricultural land or commercial premises, and the remedy proposed is to appoint a receiver, or to take possession of or lease the land or a part thereof.
28. This Court has already found in this ruling that the defendants have demonstrated that the value of the outstanding loan balance has outstripped the value of the security, thus even if the suit property was to be sold at its market value or forced sale value as per the Valuation Report produced by the defendants, the proceeds of the sale would still not be sufficient to settle the said debt. From the affidavits filed by the defendants, it is clear that they are ready and willing to accept the proceeds of Kshs.220,000,000/= as full and final settlement of the dispute between the parties herein. By a letter dated 29th November, 2023 addressed to the plaintiffs’ Advocates, the 1st defendant’s Advocates informed the plaintiffs of their willingness to write off the sum of Kshs.879,130,152.07 if the offer to settle the case at Kshs.220,000,000/= was accepted. The plaintiffs contend that they never accepted the said proposal and so the suit property should not have been sold for the said amount.
29. Despite the fact that the plaintiffs never accepted the proposal, the defendants had the right to mitigate their losses. That being the case, I am persuaded that the remedy and/or orders sought by the defendants are reasonable and necessary to prevent any further reduction in the value of the charged land.
30. Upon perusal of the provisions of Section 104(1) of the Land Act, it is apparent that an application for leave to sell a charged property by public auction at a value below its forced sale value ought to be filed before the property is sold. Section 104(2) (d) of the Land Act, however grants Courts the power to ratify such a sale in the event that it was conducted before leave of the Court was sought. The said provisions state the following -
A court may refuse to grant an order under subsection (1) or may grant any relief against the operation of a remedy that the circumstances of the case require and without limiting the generality of those powers, may -
d) authorize or approve the remedy applied for or proposed by the chargee, notwithstanding that some procedural errors took place during the making of any notices served in connection with that remedy if the court is satisfied that -
i) the chargor or other person applying for relief was made fully aware of the action required to be taken under or in connection with the remedy; and
ii) no injustice will be done by authorising or approving the remedy, and may authorise or approve that remedy on any conditions as to expenses, damages, compensation or any other relevant matter as the court thinks fit.
31. As explained hereinbefore, vide a letter dated 29th November, 2023, the plaintiffs’ Advocates were notified of the fact that the suit property was sold for Kshs.220,000,000/= at an auction held on 22nd August, 2023. They were asked to implore upon the plaintiffs to accept the said offer which would be treated as the final settlement in this matter as the balance of Kshs.975,735,556.69 would be written off. Given the said circumstances, in the event the auction sale of 22nd August, 2023 is ratified by this Court, the plaintiffs shall not suffer any prejudice since even if the suit property had been sold at its market value or forced sale value, the proceeds of the sale would not have been sufficient to settle the outstanding loan balance owed to the 1st defendant by the plaintiffs. In this instance, it will be a win-win situation for the plaintiffs and the 1st defendant, as the plaintiffs will not be pursued any more for the outstanding loan balance over and above the sum of Kshs.220,000,000/=.
32. The Court in the case of M Z S v Gulf African Bank Limited & 2 others [2015] eKLR, when addressing the import of the provisions of Section 104(2) (d) of the Land Act, held that –
Accordingly, having considered the pleadings, the affidavit evidence and written submissions and the case law that was relied upon by the parties, the court found that this was clearly a suitable case in which it court could invoke its inherent jurisdiction as provided for in Sections 3A and 63(e) of the Civil Procedure Act that give it wide and unfettered discretion to make such orders as may be necessary for the ends of justice and to make such interlocutory order as may appear to the court to be just and convenient to prevent the ends of justice from being defeated. Further, the powers under Section 104(2) of the Land Act are not limited to the powers set out therein but are expansive and can be exercised depending on the circumstance of each case.
33. This Court finds that it is in the interest of justice and for the parties herein, to issue an order ratifying the auction sale conducted on 22nd August, 2023, whereby the suit property was sold for Kshs.220,000,000/=.
34. In light of the above finding, this Court shall not determine the issue of whether or not the plaintiff’s suit should be struck out for being an abuse of the Court process and for judgment entered for the defendants as prayed in the amended defence and counterclaim, for that was an alternative prayer/relief, and belabouring on the same will be an academic exercise.
35. In the end, this Court finds that the plaintiffs’ application dated 22nd November, 2023 is not merited, whereas the defendants’ application dated 29th February, 2024 is merited. As a result, I make the following orders –
i) The plaintiffs’ application dated 22nd November, 2023 is hereby dismissed;
ii) This Court is hereby pleased to ratify the auction sale conducted on 22nd August, 2023 whereby the charged property Title Number Limuru/Kamirithu/4504 was sold to Peter Birugu Gachugu, at Kshs.220,000,000/=, in terms of the 1st defendant’s letter dated 29th November, 2023;
iii) An order is hereby issued that the charged property shall be forthwith transferred and registered in the name of the purchaser, Peter Birugu Gachugu; and
iv) Costs are awarded to the defendants.
It is so ordered.
DATED, SIGNED and DELIVERED at NAIROBI on this 14th day of October 2024. Ruling delivered through Microsoft Teams Online Platform.
NJOKI MWANGI
JUDGE
In the presence of:
Mr. Sichangi for the plaintiffs
Mr. Mutugi for the 1st & 2nd defendants
Ms B. Wokabi – Court Assistant.
2. The application is premised on the grounds on the face of the Motion and is supported by an affidavit sworn on the same day by David Kabubii Kuria, the 4th plaintiff herein and a Director of the 1st, 7th & 8th plaintiff companies. He contended that the selling of the suit property for Kshs.230,000,000/= was a significant undervaluation, inconsistent with previous valuations, current value, or market value. He noted that the defendants had set a forced sale value of Kshs. 308,000,000/= for the suit property, but they assert that they failed to achieve it, hence the suit property was sold to the highest bidder. He contended that according to an independent valuation that the plaintiffs conducted recently, the suit property’s current market value is Kshs.600,000,000/=, with a forced sale value of Kshs.450,000,000/=. Mr. Kuria asserted that the auction on 22nd August, 2023 was illegal because the defendants had not conducted a forced sale valuation as required by Section 97(2) of the Land Act, and that Peter Birugu was the only bidder, and as the highest bidder, he purchased the suit property at a price significantly below its current market value.
3. In opposition to the application, the defendant filed a replying affidavit sworn on 29th February, 2024 by Andrew Muchina, the 1st defendant’s Senior Legal Manager. He confirmed that as at 26th June, 2023, the forced sale value of the suit property was Kshs.308,000,000/=, and averred that the plaintiffs had not tendered any evidence to demonstrate that the open market value of the suit property is Kshs.600,000,000/=. He further averred that when a charged property is sold at an auction, the price is based on the forced sale value not the open market value. He stated that in this case, despite several attempts to sell the suit property at a public auction, the 1st defendant was unable to reach the forced sale value. He said for instance, the highest bids made at the auctions held on 30th October, 2019 and 28th February, 2020 were Kshs.200,000,000/=, and for the auction held on 1st February, 2023 the highest bid was Kshs.100,000,000/=.
4. Mr. Muchina stated that despite the foregoing, the 1st defendant successfully sold the suit property on 22nd August, 2023 to Peter Birugu Gachugu for Kshs.220,000,000/=, which he described as the best reasonably obtainable price. He asserted that the 1st defendant is willing to settle the dispute herein by accepting the sale proceeds of Kshs.220,000,000/= as full and final settlement. He contended that the plaintiff\'s application is res judicata, as applications seeking similar orders as the ones sought in the plaintiffs’ application made on 19th January, 2019, 5th February, 2020, 8th February, 2020 and 3rd March, 2020 were dismissed in rulings delivered on 27th February, 2020 and 18th May, 2020 for failure to establish a prima facie case.
5. He contended that the plaintiff’s suit should be struck out as it does not disclose a reasonable cause of action against the defendants, and that it is frivolous and vexatious. He noted that the plaintiffs had admitted the debt, and as was held by the Court in its ruling delivered on 18th May, 2020, the plaintiffs had acknowledged the default, and promised to repay the loan but failed to do so. He stated that even if the suit property had been sold at either the open market value or forced sale value, the proceeds of the sale would still not be sufficient to repay the entire loan, as the loan amount has outstripped the value of the security held by the 1st defendant.
6. The 2nd application is the 1st defendant’s Notice of Motion dated 29th February, 2024 filed pursuant to the provisions of Sections 1A, 1B, 3A & 7 of the Civil Procedure Act, Sections 104(1)(a), (2)(c) & (d) of the Land Act, 2012, Order 40 Rule 7 & Order 2 Rule 15 of the Civil Procedure Rules, 2010, and all other enabling provisions of the law. The 1st defendant seeks inter alia, for orders for sanctioning and/or ratification of the auction sale conducted on 22nd August, 2023 whereby the charged property Title Number Limuru/Kamirithu/4504 was sold to Mr. Peter Birugu Gachugu at Kshs.220,000,000/=, an order that the charged property be forthwith transferred and registered in the name of the purchaser, Mr. Peter Birugu Gachugu, and in the alternative, that the plaintiff’s suit be struck out and judgment be entered in favour of the defendants as prayed in the further amended defence and counter-claim.
7. The application is premised on the grounds on the face of the Motion and is supported by an affidavit sworn on the same day by Andrew Muchina, the 1st defendant’s Senior Legal Manager. He averred that the suit property should be transferred to Mr. Peter Birugu Gachugu since the loan facility has outstripped the value of the security held by the 1st defendant. He noted that the amount secured by the charged property is Kshs.450,000,000/=, whereas the total outstanding loan amount as at 2nd February, 2024 was Kshs.1,099,130,152.07. He stated that even if the suit property was sold at either the open market value or forced sale value, the proceeds of the sale would still not be sufficient to repay the entire loan.
8. Mr. Muchina stated that before accepting the bid of Kshs.220,000,000/= for the suit property, the price was communicated to the plaintiffs vide a letter dated 29th November, 2023, which letter also requested them to accept the price as the final settlement of the matter. He averred that the plaintiffs’ suit should be struck out as it does not disclose a reasonable cause of action against the defendants, and that it is frivolous and vexatious. He asserted that the plaintiffs had admitted the debt, as was held by the Court in its ruling delivered on 18th May, 2020 and that they had acknowledged the default, and promised to repay the loan but failed to do so. He urged this Court to strike out the plaintiff’s suit and enter judgment for the 1st defendant in the sum of Kshs.1,099,130,152.07 in the event that the auction sale was not ratified.
9. The applications herein were canvassed by way of written submissions which were highlighted on 29th July, 2024. The plaintiffs’ submissions were filed by the law firm of San Advocates Kenya on 22nd June, 2024, whereas the defendants’ submissions were filed by the law firm of Wamae & Allen LLP on 2nd May, 2024.
10. Mr. Sichangi, learned Counsel for the plaintiffs cited the provisions of Sections 97(1), (2) & (3) and 98 of the Land Act and submitted that since the plaintiffs have demonstrated that the 1st defendant breached its duties in the conduct and sale of the suit property by public auction, the purported sale should be declared void. He further submitted that Section 104 of the Land Act cannot be invoked for this Court to cure and/or ignore an illegality.
11. Mr. Mutugi, learned Counsel for the defendants submitted that the plaintiffs\' application is res judicata, as similar applications made on 19th January, 2019, 5th February, 2020, 8th February, 2020, and 3rd March, 2020 were dismissed in rulings delivered on 27th February, 2020 and 18th May, 2020 for failure to establish a prima facie case. He noted that the plaintiffs seek to restrain the 1st defendant from exercising its statutory power of sale, but the said prayer cannot be granted, as the Court in a ruling delivered on 18th May, 2020 held that the 1st defendant\'s power of sale could not be restrained. Counsel stated that the said ruling has not been successfully appealed, reviewed, and/or set aside. He relied on the case of Telkom Kenya Limited v John Ochanda (Suing on his own behalf and on behalf of 996 former employees of Telkom Kenya Limited [2014] eKLR, and contended that this Court is functus officio regarding the plaintiff\'s’ application for an injunction.
12. He cited the provisions of Section 104(1)(a) of the Land Act and asserted that this Court has the authority to ratify the auction sale held on 22nd August, 2023 to prevent further reduction in the value of the property. He contended that since the loan balance now exceeds the value of the security, ratifying the sale would protect the property\'s value, noting that the last bid on 1st February, 2023 was Kshs.100,000,000/=. Counsel referred to the provisions of Sections 104(2)(c) & (d) of the Land Act and stated that the defendants are unable to sell the suit property at the required forced sale value of Kshs.308,000,000/=.
13. He urged this Court to ratify the auction sale held on 22nd August, 2023 and order for the transfer of the property to the highest bidder, asserting that any auction errors do not negate this Court’s authority to grant such orders. To support his argument, Mr. Mutugi relied on the decisions in Ecobank Kenya Limited v First Choice Mega Stores Limited [2018] eKLR, and Ecobank Kenya Limited v Moru Ridge Limited & another [2020] eKLR. Additionally, Mr. Muchina referred to the decisions made in the County Council of Nandi v Ezekiel Kibet Rutto & 6 others [2013] eKLR, and Trust Bank Limited v H.S. Amin & Company Limited & another [2000] eKLR. He called for the dismissal of this suit on the ground that it is an abuse of the Court process.
14. In a rejoinder, Mr. Sichangi submitted that the plaintiffs’ application is not res judicata since it has been filed post sale of the suit property, and it challenges the legality of the sale. He further submitted that the defendants had not produced a Valuation Report which was done within a year to the sale, to demonstrate that they complied with the requirements of Sections 97 & 98 of the Land Act. He asserted that the plaintiffs did not consent to the sale of the suit property at Kshs.220,000,000/= for the 1st defendant to write off the balance of the outstanding amount. Counsel contended that the amount disbursed by the 1st defendant was between Kshs.420,000,000/= to Kshs.440,000,000/= plus interest.
ANALYSIS AND DETERMINATION
15. I have considered the applications filed herein, and the affidavits filed in support thereof. I have also considered the replying affidavit by the defendants and the written submissions by Counsel for the parties. The issues that arise for determination are –
i) Whether the plaintiffs’ application for injunction is res judicata;
ii) Whether the plaintiffs have made out a case for setting aside of the Certificate and Memorandum of Sale in this matter by Nairobi Channels Auctioneers, the 2nd defendant herein, dated 22nd August, 2023;
iii) Whether this Court should ratify the auction sale conducted on 22nd August, 2023 whereby the suit property was sold for Kshs.220,000,000/=; and
iv) Whether the plaintiffs’ suit should be struck out and judgment entered in favour of the defendants as prayed in the further amended defence & counter-claim.
Whether the plaintiffs’ application for injunction is res judicata.
16. The defendants are challenging the plaintiffs’ application for injunction on the grounds that the order sought is res judicata. On perusal of the orders sought in the plaintiffs’ application, it is however evident that the prayers for injunction under prayer Nos. 2 & 3 are spent since they read “pending inter partes hearing and pending the determination by way of a ruling of this instant application”. This Court will therefore not dwell on an issue that is already spent.
Whether the plaintiffs have made out a case for setting aside of the Certificate & Memorandum of Sale in this matter by Nairobi Channels Auctioneers, the 2nd defendant herein, dated 22nd August, 2023.
17. The suit property in issue was sold at a public auction held on 22nd August, 2023 for Kshs.220,000,000/=, which value was below its forced sale value. The plaintiffs’ contention is that the said sale by auction was illegal for failure to comply with the provisions of Section 97(2) of the Land Act and should therefore be set aside. Section 97(2) of the Land Act states that –
A chargee shall, before exercising the right of sale, ensure that a forced sale valuation is undertaken by a valuer.
18. Annexed to the plaintiffs’ affidavit in support of the application dated 22nd November, 2023, is a letter dated 22nd November, 2023 addressed to the 1st plaintiff by Proficient Valuers Limited, stating that the current market value of the suit property is Kshs.600,000,000/=. It is however worth noting that the said letter is not accompanied by a Valuation Report to show how the said Valuers arrived at the figure of Kshs.600,000,000/=. Further, in as much as the said Valuers indicated in their letter that they were in the process of finalizing the Report, to date the plaintiffs have not produced the said Report in Court to corroborate the allegation that the current market value of the suit property is Kshs. 600,000,000/=.
19. The defendants on the other hand produced a Valuation Report dated 26th June, 2023 prepared by Coral Property International Limited that shows that as at 26th June, 2023, the suit property had a market value of Kshs.411,000,000/= and a forced sale value of Kshs.308,000,000/=. As stated before in this ruling the suit property was sold in an auction held on 22nd August, 2023, which is approximately two (2) months after valuation of the suit property was done. It is therefore my finding that the defendants complied with the provisions of Section 97(2) of the Land Act before selling the suit property.
20. From the foregoing, it is evident that the suit property was sold below its forced sale value of Kshs.308,000,000/=, as it was sold for Kshs.220,000,000/=. The defendants contended that they made several attempts to sell the suit property by public auction but all the bids made failed to meet the forced sale value. For instance, the defendants have demonstrated by way of letters addressed to them by the Auctioneers they had instructed to sell the suit property by way of public auction, that the highest bids at the auctions held on 30th October, 2019 and 28th February, 2020 were Kshs.200,000,000/=, and the highest bid for the auction held on 1st February, 2023 was Kshs.100,000,000/=.
21. They have also demonstrated by way of statements of accounts that even if the current market value of the suit property is Kshs.600,000,000/=, the balance of the outstanding loan amount which as at 2nd February, 2024 stood at Kshs.1,099,130,152.07 has outstripped the value of the security held, which is the suit property. Therefore, even if the suit property was to be sold at Kshs.600,000,000/=, the proceeds of the sale would still be insufficient to clear the outstanding loan balance owed to the 1st defendant by the plaintiffs.
22. Section 97(1) of the Land Act provides that –
A chargee who exercises a power to sell the charged land, including the exercise of the power to sell in pursuance of an order of a court, owes a duty of care to the chargor, any guarantor of the whole or any part of the sums advanced to the chargor, any chargee under a subsequent charge or under a lien to obtain the best price reasonably obtainable at the time of sale.
23. On the other hand, Section 98 of the Land Act states that –
If a chargee or a receiver becomes entitled to exercise the power of sale, that sale may be -
a) of the whole part of the charged land;
b) subject to or free of any charge or other encumbrance or charge having priority to the chargee\'s charge;
c) by way of subdivision or otherwise;
d) by private contract at market value;
e) public auction with reserve price… (Emphasis added).
24. From the foregoing, it is trite that if a charged property is sold by private treaty by a chargee exercising its statutory power of sale over the property, then it can only be sold for a value not less than its current market value, but if the said sale is by way of public auction, it can only be sold for a value not less than its forced sale value. In the absence of any other Valuation Report, I am persuaded that as at 26th June, 2023, the suit property had a market value of Kshs.411,000,000/= and a forced sale value of Kshs.308,000,000/=. However, noting that the outstanding loan balance has outstripped the value of the security, and that the plaintiffs have not demonstrated any attempts and/or steps taken towards settling the outstanding loan balance, the sale of the suit property was the only viable option available to the 1st defendant to recover some of its monies and to reduce its exposure.
25. Further, the defendants have also demonstrated that they had previously made three attempts to sell the suit property by public auction but they were not successful since all the bids made at the said auctions were way below the suit property’s forced sale value. In the circumstances, I am satisfied that the defendants were justified to accept the bid of Kshs.220,000,000/= for the suit property, so as to recover some of its monies considering that the plaintiffs have been unable to repay the loan amount which continues to accrue interest.
26. Given the said facts, this Court finds that the plaintiffs have not made out a case to warrant nullification of the sale of the suit property and the setting aside of the Certificate & Memorandum of Sale by Nairobi Channels Auctioneers, the 2nd defendant herein dated 22nd August, 2023.
Whether this Court should ratify the auction sale conducted on 22nd August, 2023 whereby the suit property was sold for Kshs 220,000,000/=.
27. The defendants cited the provisions of Section 104(1)(a) of the Land Act and submitted that it gives this Court the power to sanction and/or ratify the sale of the suit property in an auction held on 22nd August, 2023 at Kshs.220,000,000/=, which value is below the suit property’s forced sale value. Section 104(1) (a) of the Land Act provides that -
In considering whether to grant relief as applied for, a court -
a) shall, have regard to whether the remedy which the chargee proposes to exercise is reasonably necessary to prevent any or any further reduction in the value of the charged land or to reverse any such reduction as has already occurred if the charged land consists of agricultural land or commercial premises, and the remedy proposed is to appoint a receiver, or to take possession of or lease the land or a part thereof.
28. This Court has already found in this ruling that the defendants have demonstrated that the value of the outstanding loan balance has outstripped the value of the security, thus even if the suit property was to be sold at its market value or forced sale value as per the Valuation Report produced by the defendants, the proceeds of the sale would still not be sufficient to settle the said debt. From the affidavits filed by the defendants, it is clear that they are ready and willing to accept the proceeds of Kshs.220,000,000/= as full and final settlement of the dispute between the parties herein. By a letter dated 29th November, 2023 addressed to the plaintiffs’ Advocates, the 1st defendant’s Advocates informed the plaintiffs of their willingness to write off the sum of Kshs.879,130,152.07 if the offer to settle the case at Kshs.220,000,000/= was accepted. The plaintiffs contend that they never accepted the said proposal and so the suit property should not have been sold for the said amount.
29. Despite the fact that the plaintiffs never accepted the proposal, the defendants had the right to mitigate their losses. That being the case, I am persuaded that the remedy and/or orders sought by the defendants are reasonable and necessary to prevent any further reduction in the value of the charged land.
30. Upon perusal of the provisions of Section 104(1) of the Land Act, it is apparent that an application for leave to sell a charged property by public auction at a value below its forced sale value ought to be filed before the property is sold. Section 104(2) (d) of the Land Act, however grants Courts the power to ratify such a sale in the event that it was conducted before leave of the Court was sought. The said provisions state the following -
A court may refuse to grant an order under subsection (1) or may grant any relief against the operation of a remedy that the circumstances of the case require and without limiting the generality of those powers, may -
d) authorize or approve the remedy applied for or proposed by the chargee, notwithstanding that some procedural errors took place during the making of any notices served in connection with that remedy if the court is satisfied that -
i) the chargor or other person applying for relief was made fully aware of the action required to be taken under or in connection with the remedy; and
ii) no injustice will be done by authorising or approving the remedy, and may authorise or approve that remedy on any conditions as to expenses, damages, compensation or any other relevant matter as the court thinks fit.
31. As explained hereinbefore, vide a letter dated 29th November, 2023, the plaintiffs’ Advocates were notified of the fact that the suit property was sold for Kshs.220,000,000/= at an auction held on 22nd August, 2023. They were asked to implore upon the plaintiffs to accept the said offer which would be treated as the final settlement in this matter as the balance of Kshs.975,735,556.69 would be written off. Given the said circumstances, in the event the auction sale of 22nd August, 2023 is ratified by this Court, the plaintiffs shall not suffer any prejudice since even if the suit property had been sold at its market value or forced sale value, the proceeds of the sale would not have been sufficient to settle the outstanding loan balance owed to the 1st defendant by the plaintiffs. In this instance, it will be a win-win situation for the plaintiffs and the 1st defendant, as the plaintiffs will not be pursued any more for the outstanding loan balance over and above the sum of Kshs.220,000,000/=.
32. The Court in the case of M Z S v Gulf African Bank Limited & 2 others [2015] eKLR, when addressing the import of the provisions of Section 104(2) (d) of the Land Act, held that –
Accordingly, having considered the pleadings, the affidavit evidence and written submissions and the case law that was relied upon by the parties, the court found that this was clearly a suitable case in which it court could invoke its inherent jurisdiction as provided for in Sections 3A and 63(e) of the Civil Procedure Act that give it wide and unfettered discretion to make such orders as may be necessary for the ends of justice and to make such interlocutory order as may appear to the court to be just and convenient to prevent the ends of justice from being defeated. Further, the powers under Section 104(2) of the Land Act are not limited to the powers set out therein but are expansive and can be exercised depending on the circumstance of each case.
33. This Court finds that it is in the interest of justice and for the parties herein, to issue an order ratifying the auction sale conducted on 22nd August, 2023, whereby the suit property was sold for Kshs.220,000,000/=.
34. In light of the above finding, this Court shall not determine the issue of whether or not the plaintiff’s suit should be struck out for being an abuse of the Court process and for judgment entered for the defendants as prayed in the amended defence and counterclaim, for that was an alternative prayer/relief, and belabouring on the same will be an academic exercise.
35. In the end, this Court finds that the plaintiffs’ application dated 22nd November, 2023 is not merited, whereas the defendants’ application dated 29th February, 2024 is merited. As a result, I make the following orders –
i) The plaintiffs’ application dated 22nd November, 2023 is hereby dismissed;
ii) This Court is hereby pleased to ratify the auction sale conducted on 22nd August, 2023 whereby the charged property Title Number Limuru/Kamirithu/4504 was sold to Peter Birugu Gachugu, at Kshs.220,000,000/=, in terms of the 1st defendant’s letter dated 29th November, 2023;
iii) An order is hereby issued that the charged property shall be forthwith transferred and registered in the name of the purchaser, Peter Birugu Gachugu; and
iv) Costs are awarded to the defendants.
It is so ordered.
DATED, SIGNED and DELIVERED at NAIROBI on this 14th day of October 2024. Ruling delivered through Microsoft Teams Online Platform.
NJOKI MWANGI
JUDGE
In the presence of:
Mr. Sichangi for the plaintiffs
Mr. Mutugi for the 1st & 2nd defendants
Ms B. Wokabi – Court Assistant.