Court of Appeal sets aside ruling in property tussle

By Nyakundi Nyamboga

This is an appeal against the ruling of the High Court in which a property dispute between Samuel Mwehia Gitau and Elijah arap Bii was determined in favour of Gitau without the benefit of a full trial.

The dispute related to land in Nairobi’s Dam View Estate, Langata, comprising 0.1122 of a hectare on which a three-bedroom house was erected.

Bii, formerly general manager at Kenya Commercial Bank, was originally the registered proprietor of the property. Some time in 1986, he charged the property to Kenya Commercial Bank Ltd to secure a loan of Sh3,405,000 together with interest and other monies.

He subsequently defaulted in the repayment of the loan after which the bank gave statutory notice of its intention to realise the security under its statutory power of sale conferred by the Transfer of Property Act.

On February 20, 2003, the bank entered an agreement with Samuel Gitau to sell the property apparently by private treaty for Sh3,800,000. By a transfer dated June 4, 2003, the bank transferred the property to Gitau for Sh3,405,000 and he was registered as proprietor on June 18, 2003.

Vacant possession

On August 22, 2003, he filed a suit at the High Court against Bii for vacant possession and other reliefs. It is Gitau’s case that he attended the public auction of the suit premises on January 17, 2003 and was the highest bidder. However, he was informed in writing by auctioneers, that the auction sale could not take place, and instead, the bank would sell the suit premises. Further, he said, he submitted a bid to pay Sh3,800,000, which the bank accepted and subsequently entered into an agreement of sale.

However, Bii in his defence, claims Sh4,515,884.60 was bided at the public auction but the parties got into fraudulent arrangement to offer a price of Sh3.8 million.

It is Bii’s counter-claim that the purported sale by a privately negotiated treaty is fraud and subsequent sale to Gitau should be rendered null and void. Gitau denies and maintains he is a ‘bona fide’ purchaser for value and his title is unimpeachable.

On its part, the bank denies any shady dealings. On February 11, 2004, Gitau asked for summary judgment. Bii opposed the application. The High Court allowed Gitau’s application and entered judgment.

Power of sale

Said Judge Mugo: "I find that Bii is attempting to do exactly what is prohibited by section 69B (2), which specifically states a title conferred by the transfer made in exercise of the mortgagee’s power of sale shall not be impeachable on the grounds no cause had arisen to authorise the sale; or that due notice was not given; or that the power was improperly exercised.

She went on: "The defence along these lines is not one that the court will entertain or require evidence to be adduced. Fraud or the allegation of its existence, in my view, falls under sub-section 69B 2 (c) and cannot form a basis of either a cause of action against a party, who has bought a property in the exercise of a statutory power of sale however conducted, nor can it afford a defence to an action for delivery of possession subsequent to such a sale".

Dissatisfied, Bii through lawyer Nicholas Sumba, moved to the Court of Appeal on various grounds, chiefly that the judge erred in law and misdirected herself by deciding that fraud is not a ground for nullifying a sale conducted in exercise of a bank’s statutory power of sale in accordance with section 69 of the ITPA.

The lawyer submitted, among other things, that the finding of the judge that fraud is not a ground for setting aside the sale is incorrect in law; the decision contradicts the law; court can go beyond the registration and rescind a registration if fraud is discovered and the appellant should have been heard on the issue of fraud.

Mr Benson Ngugi for Gitau submitted, among other things, that Bii lost his right of redemption at the moment the transfer was registered; the ground of fraud pleaded fell within the exemptions in damages and that there is nothing to be heard on the question of vacant possession.

Straightjacket

Mr Charles Njagi for the bank also opposed the appeal and submitted that the grounds pleaded in support of fraud fall in the realm of irregularities in Section 69B (2). In a 16-page ruling, the Court of Appeal agreed with Sumba that this was not a straight jacket matter that would be determined without benefit of a full trial.

After reviewing case law on the issue, the judges noted: "It is clear that the issue whether or not the impugned sale by the bank in exercise of its statutory power of sale can be set aside on ground of fraud is a complex legal issue. It is an issue, which has to be determined in the perspective of the general duties of a mortgagee, the relevant provisions of RTA and TPA, the relevant case law and upon consideration of evidence as to whether the sale was tainted with impropriety amounting to fraud.

The case law referred to shows ‘prima facie’ that the correctness of decision of the learned judge is questionable, said the judges. They noted the judge construed Section 69B (2) in abstraction and without the benefit of full arguments, authorities or evidence. The judge also granted all the prayers in the plaint including damages for trespass and special damages of Sh2, 890,000 without proof.

The appellate judges said it is no surprise the appeal against the award of Sh2, 890,000 has been conceded. The High Court judge did not also make an order disposing of the counter-claim one way or another.

Consequently, the appeals court proceeded to allow the appeal, set aside the ruling and order of the High Court dated September 22, 2004, with costs to Bii.