AN OVERVIEW OF THE NEW LAND ACTS FROM A LITIGATOR'S PERSPECTIVE

AN OVE RVIE W OF THE NE W LAND ACTS FROM A LITIGATOR’S PE RSPE CTIVE ALLE N WAIYAKI GICHUHI1 Preamble 1. This paper is not meant to be an exhaustive analysis of the new Land Acts. The scope and intent is limited to certain goal posts of germane importance and practicability. It relies on the wisdom of the judges who interpreted the law under the repealed Land Acts. Their judgments and rulings hold significant jurisprudential value that should be exploited under the new Land Acts and present a plethora of collective judicial wisdom that so enriches our Kenyan common law. 2. After decades in existence, most of the land Acts were repealed pursuant to Section 109 of the Land Registration Act and Section 161 of the Land Act. Like faithful servants who had served with distinction for decades they became foot-notes in the history of our statute museum. The advent of the new Constitution heralded a new dawn that led to the creation of three substantive land statutes. The 2nd day of May 2012 was the momentous day when the following Acts came into force:    The National Land Commission Act The Land Registration Act The Land Act. 3. The Hansard of 26th April 2012 shows that on this day Parliament repealed the following Acts:         The Indian Transfer of Property Act, 1882 The Government Lands Act, (Cap 280) The Registration of Titles ACT, (Cap 281) The Land Titles Act, (Cap 282) The Registered Land Act, (Cap 300) The Wayleaves Act, (Cap 292) The Land Acquisition Act, (Cap 295) The Land Control Act (Cap. 302) 4. Section 109 of the Land Registration Act, 2012 was the operative Section that repealed the above Acts. However, there was a significant omission in the repeal of one Act. The Land Control Act, though having been repealed by Parliament on 26th April 2012, strangely not included in the list of Repealed 1 The writer is the head of the litigation department in Walker Kontos Advocates, a Council Member of the Law Society of Kenya, the Convener of the Litigation Committee of the Law Society of Kenya, a member of-the Advocates Remuneration Committee of the Law Society of Kenya, the Bar-Bench Committee of the High Court at the Milimani Commercial and Admiralty Division, the Legal Sub-Committee of the Chartered Institute of Arbitrators , the Court of Appeal Court User’s Committee-and Fellow of the Chartered Institute of Arbitrators He also periodically lectures at the Kenya School of Law on Civil Procedure. 1 Acts. Was this the case of a slip or deliberation omission? The writer filed an application in a pending Constitutional Petition in Hon. Basil Criticos v The Attorney General & 8 Others2 where Honorable Justice Lenaola held as follows: ‘’25. The Petitioner has sought an order directed at the 1st Respondent herein to gazette the Land Control Act as a repealed law pursuant to the National Assembly debate as seen above. Does the 1st Respondent have such powers? To answer that question, I will first address my mind to the role of Parliament in enacting legislation. Article 109 of the Constitution grants Parliament powers to exercise its legislative power through Bills passed by Parliament and assented to by the President. Article 116 (1) of the Constitution provides that a Bill passed by Parliament and assented to by the President shall be published in the Gazette as an Act of Parliament within seven days after assent. The President assented this Act on 27th April 2012 and its commencement date was on 2nd May 2012. 26. The Bill was therefore assented by the President and subsequently published by the 1st Respondent. This means that what is actually the law today does not include the Land Control Act Cap 302 in the Schedule of the repealed laws. 27. Clearly, the Parliamentary Hansard proceedings of 26th April 2012 reveal that the Schedule to the Land Control Act was amended and the Land Control Act was incorporated into the schedule of repealed laws. This was the intention of the legislature in enacting the Land Registration Act of2012. Can this court therefore order the Attorney General to gazette the said Land Control Act as a repealed Act? I do not think so. The Powers of the Attorney General to rectify formal errors in law is stipulated under Section 13 of the Revision of Laws Act. This Section reads: “13.The Attorney-General may, by order in the Gazette, rectify Rectification of any clerical or printing error appearing in the Laws of Kenya, or rectify formal errors in a manner not inconsistent with the powers of revision conferred by this Act any other error so appearing. ” 28. The omission of the Land Control Act in the repealed schedule of laws does not fall under a clerical, printing or a formal error which the 1st Respondent has powers under Section 13 to rectify. It is an omission and in my view this is not within the powers of the Attorney General under Section 13 of the Revision of Laws Act. It therefore appears that the only remedy available would be for the Attorney General to move a Miscellaneous Statute Amendment Bill to Parliament for consideration. I see no prejudice if this Court makes a specific order directed as the Hon. The Attorney-General to move with haste and address that obvious error.’’ 5. The judge directed the honorable Attorney General to ‘’move with speed and address the non-repeal of the Land Control Act in spite of Parliament's decision to that effect.’’ 6. In the last Statutes Miscellaneous Bill of 2012, the Land Control Act was listed for repeal. However, on account of the election fever, the Honorable Attorney General deferred several sections of the Statute Miscellaneous Act with a view to concentrate on the amendments concerning the Elections. 7. It is hoped that the next Parliament shall finally repeal the Land Control Act. 2 [2012]Eklr 2 8. This paper shall now examine various salient sections of the two main Land Acts. THE LAND REGISTRATION ACT 9. The Act now revises, consolidates and rationalizes the registration of titles to land, to give effect to the principles and objects of devolved government in land registration and for connected purposes. The Legal Charge- Consent to Transfer 10. Part V deals with the form and effect of Charges. Of interest is Section 59 that deals with the Lender’s consent to transfer. The section reads: ‘’59. If a charge contains a condition, express or implied by the borrower that the borrower will not, without the consent of the lender, transfer, assign or lease the land or in the case of a lease, sublease, no transfer, assignment, lease or sublease shall be registered until the written consent of the lender has been produced to the Registrar.’’ 11. Section 87 of the Land Act is couched in similar terms and makes it mandatory to obtain the consent of the chargee. 12. In practice, there are numerous instances of borrowers surreptitiously disposing of the charged property. For instance, the borrower may have put up a block of apartments, and without consulting the bank, proceeds to enter into sale agreements and deposits the sale proceeds with another bank. Section 59 now makes it mandatory that the written consent of the lender must be produced before any registration of a lease or sublease can be registered. 13. Another case was that of Millicent Mugih v Speedways Investment Ltd & CfC Stanbic Bank Limited3. In this case, the plaintiff had entered into a sale agreement without the consent of the bank. The honourable Mr. Justice Kimaru dismissed the injunction application on 29th April 2010. The reasons for dismissal were, inter alia,: (a) The plaintiff was aware the bank’s consent was required for the agreement to be valid and enforceable and could not plead ignorance. (b) Any damages suffered were quantifiable. 14. Similar issues were addressed in the case of Morris & Co. Ltd v Kenya Commercial Bank Ltd4. One of the issues raised by the Plaintiff’s advocates in that case was the fact that the bank allegedly refused to grant consent to the plaintiff to enter into a lease. In opposition, the bank’s advocate pointed out that:   Consent cannot be sought retrospectively. No consent can be given to an unstamped document. Justice Ringera (as he then was) held, inter alia: 3 4 Milimani HCCC No. 768 of 2009 [2003] 2 EA 605 3 ‘As regards the prayer for an order directing the lender to consent to and grant approval to a lease between the plaintiff and a third party, there was no provision in the debenture that the consent shall not be unreasonably withheld. Prima facie the lender had an unfettered discretion to withhold its consent to any intended lease and was not fettered by any obligation to be unreasonable in any refusal to consent. Had the parties intended to fetter such discretion, they would have so provided in the debenture.’ THE LAND ACT 15. The preamble to the Act states that it gives effect to Article 68 of the Constitution to revise, consolidate and rationalize land laws; to provide for the sustainable administration and management of land and land based resources and for connected purposes. Contracts Over Land 16. Section 38 of the Land Act is similar to Section 3 (3) of the Law of Contract Act. Section 38 reads: 38. (1) No suit shall be brought upon a contract for the disposition of an interest in land unless— (a) the contract upon which the suit is founded— (i) is in writing; (ii) is signed by all the parties thereto; and (b) the signature of each party signing has been attested to by a witness who was present when the contract was signed by such party. (2) Subsection (1) shall not apply to a contract made in the course of a public auction nor shall anything in that subsection affect the creation or operation of a resulting, implied or a constructive trust. 17. Of importance to advocates is the requirement under Section 38 (1) (b) as regards the attesting of the signature. 18. Black’s Law Dictionary 6th Edition defines attestation as: ‘’The act of witnessing an instrument in writing, at the request of the party making the same, and subscribing the name of the witness in testimony of such fact.’’ 19. Be wary of the criminal sanctions connected with making a false document and intent to defraud under Sections 347 and 348 of the Penal Code, respectively. Many advocates have faced the wrath of the prosecutor over this. Cases on Attestation 20. The courts have come out harshly against debtors who use any excuse to avoid meeting their contractual obligations of repaying a debt by alleging that they did not appear before the advocate who attested their signature. 4 21. The Court of Appeal in the case of Lalchand Fulchand Shah v I & M Bank5 addressed the issue of a debtor challenging the validity of a document. ‘If a document which is ex-facie totally valid and properly attested, a party to be charged therewith cannot simply get away from it by stating that an advocate did not attest it. Quite obviously if the Shahs had called upon Mr. Sheth to say that he appended his signature and placed his stamp in the absence of the Shahs, Mr. Sheth would deny the allegation. It would be very simple for any chargor to postpone an auction sale by simply saying that the charge is not properly attested. It such a state of affairs was allowed to be taken cognizance of there would be no end to the chargers streaming to courts to stop auction sale on that ground… I also note that no irregularity is alleged against the Bank. E ven if I were to assume that the charge was not attested by Mr. Sheth, the Bank upon receiving the document was not required to inquire into the authenticity of the attestation. If a banker is presented with a charge ex-facie valid he is not put on any inquiry to ascertain if the advocate had signed in the presence or in the absence of the charger. I agree entirely with the observations of the learned judge when he says that in all circumstances the credibility of the Shahs is very doubtful.’ Part VII- General Provisions on Charges 22. This is the part of the Land Act where the seeds for injunctions are sown. Every possible objection to the lender’s right to exercise the statutory power of sale will mainly emanate from a perceived breach of the sections following under the part. Section 78 states that the Part applies to all charges on land including any charge made before the coming into effect of the Act. 23. However, Section 78 appears to conflict with Section 162 of the Land Act that provides for saving and transitional provisions. The Sections read: ‘’78. (1) This Part applies to all charges on land including any charge made before the coming into effect of this Act and in effect at that time, any other charges of land which are specifically referred to in any Section in this Part. (2) References in this Part to "the charged land" shall be taken to mean and include a charged land, a charged lease and sublease and a second or subsequent charge. 162. (1) Unless the contrary is specifically provided in this Act, any right, interest, title, power, or obligation acquired, accrued, established, coming into force or exercisable before the commencement of this Act shall continue to be governed by the law applicable to it immediately prior to the commencement of this Act. Spousal consent to charge 24. Section 79 deals with the creation of an informal and formal charge. Section 79 (3) deals with spousal consent to charge a matrimonial home. It reads: 5 [2000] Eklr. 5 ‘’79. (1) An owner of private land or a lessee, by an instrument in the prescribed form, may charge the interest in the land or a part thereof for any purpose including but not limited to securing the payment of an existing or a future or a contingent debt or other money or money's worth or the fulfillment of a condition. (2) The power conferred by subsection (1) shall include the power to create second and subsequent charges. (3) A charge of a matrimonial home, shall be valid only if any document or form used in applying for such a charge, or used to grant the charge, is executed by the chargor and any spouse of the chargor living in that matrimonial home, or there is evidence from the document that it has been assented to by all such persons.’’ 25. The operative word is matrimonial home which is defined in Section 2 of the Act as follows: " matrimonial home" means any property that is owned or leased by one or both spouses and occupied by the spouses as their family home;’’ 26. However, we have seen cases where the borrower’s spouse rushes to court and obtains an injunction when in fact the property is not a matrimonial home. The courts must be vigilant and guard against such abuse of an equitable remedy where a spouse frustrates the exercise of the statutory power of sale. 27. In today’s polygamous society, where a man may have several wives, many of whom may be residing in the matrimonial property, the consent of all the wives must be obtained it the land is to be charged to avoid the same been challenged and possibly invalidated. Imagine the late Akuku ‘Danger’ applying to charge his land! The problem here is that spousal consent in a polygamous system that is predominantly based on customary law will be difficult to deal with. Spouses may easily rush to court and seek injunctive relief to prevent the sale of the matrimonial home. The net effect is that bank’s will be shy to advance loans in the rural areas. This in the end may bring about economic stagnation because of lack of access to credit that may spur economic growth. The farmer who wants to expand his business may inadvertently end up being punished by the law that protects his matrimonial home. Ingredients of the Charge 28. Under Section 80 (3) of the Act every charge instrument must contain(a) The terms and conditions of sale; (b) An explanation of the consequences of default; and (c) the reliefs that the chargor is entitled to including the right of sale. Variations of Interest Rate- Dispute as to amount not a ground for injunctive relief 29. Section 84 of the Land Act demands that written notice be served on the chargor by the chargee regarding the variation in the rate of interest. The relevant Section reads: 84. (1) Where it was contractually agreed upon that the rate of interest is variable, the rate of interest payable under a charge may be reduced or increased by a written notice served on the chargor by the chargee— (a) giving the chargor at least thirty days notice of the reduction or increase in the rate of interest; and (b) stating clearly and in a manner that can be readily understood, the new rate of interest to be paid in respect of the charge. 6 30. The land now requires notice to be served. The banks must amend their legal charges to ensure due compliance. Implied Covenants by the chargor 31. These implied covenants are set out in Section 88 of the Act. They are essentially 10 implied covenants. There importance is tied to the issuance of a statutory notice under Section 90 that will be discussed below. They can be summarized as follows: 88. (1) There shall implied in every charge covenants by the chargor with the chargee binding the by the chargor— (a) to pay the principal money on the day appointed in the charge agreement. (b) to pay all rates, charges, rent, taxes. (c) to repair and keep in repair all buildings and other improvements upon the charged land or to permit the chargee or chargee's agent to enter the land. (d) to take out insurance over the property in joint names of both chargor and charge. (e) in the case land used for agricultural purposes, to use the land in a sustainable manner. (f) not to lease or sublease the charged land for any period longer than a year without the previous consent in writing of the chargee, which consent shall not be unreasonably withheld; (g) not to transfer or assign the land or lease or part of it without the previous consent in writing of the chargee which consent shall not be unreasonably withheld; (h) in the case of a charge of a lease, during the continuance of the charge, to pay, perform and observe the rent, covenants and conditions contained in or implied by and in the lease; (i) if the charge is a second or subsequent charge, that the chargor will pay the interest from time to time accruing on each prior charge. (j) if the chargor fails to comply with any of the covenants implied by paragraphs (b), (c), (d), (e) and (h) of this subsection, that the chargee may spend any money which is reasonably necessary to remedy the breach. The Statutory Notice 32. Section 90 introduces a whole new ball game by setting out various ingredients to be specified in the statutory notice. At the moment, no statutory format has been set out and it is vital to ensure that the statutory notice satisfies the ingredients of the Section. By virtue of S. 72 of the Interpretation and General Provisions Act no instrument shall be void by reason of deviation from form. Lack of a statutory format cannot be used as an excuse to void any statutory notice. Persons entitled to seek discharge of the whole or part of the charge 33. Section 103 of the Act gives the chargor, joint chargers, spouse of the chargor, lessee of the chargor or the trustee in bankruptcy of the chargor the right to seek relief against the exercise by the chargee of any of the remedies referred to in Section 85 (3) (a) and (b). However, what Section 103 contemplates is the situation where the persons named therein seek court intervention to allow the redemption of the charged property. Section 85 (3) (a) and (b) provides for the giving of one month’s notice of the intention 7 to discharge or paying not more than one month’s interest as well as all other money secured by the charge. Once again, it must be stressed that the persons named herein can only seek relief under Section 103 by paying off the debt. 34. Section 104 (2) of the Land Act addresses the powers of the court in respect of remedies and reliefs. It is important to appreciate the powers of the court. The Section reads: 104. (1) 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; (b) shall, where the charged land consists of or includes, a dwelling-house, and the remedy proposed is to appoint a receiver, or take possession or lease the dwelling house or a part of it, have regard to the effect that the appointment of a receiver or the taking of possession or leasing the whole or a part of the dwelling house would have on the occupation of the dwelling house by the chargor and dependants and if the effect would be to impose undue disturbance on those owners, whether it is satisfied that— (i) the chargee has made all reasonable efforts, including the use of other available remedies available, to induce the chargor to comply with the obligations under the charge; and (ii) the chargor has persistently been in default of the obligations under the charge; and (iii) if the sale is of land held for a customary land, the chargee has had regard to the age, means, and circumstance including the health and number of dependants of the chargor, and in particular whether— (aa) the chargor will be rendered landless or homeless; (bb) the chargor will have any alternative means of providing for the chargor and dependants; (iv) it is necessary to sell the charged land in order to enable the chargee to recover the money owing under the charge; (v) in all the circumstances, it is reasonable to approve, or as the case may be, to make the order to sell the charged land. (2) A court may refuse to authorise an order 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— (a) cancel, vary, suspend or postpone the order for any period which the court thinks reasonable; (b) extend the period of time for compliance by the chargor with a notice served under Section 90; (c) substitute a different remedy or the one applied for or proposed by the chargee or a different time for taking or desisting form taking any action specified by the lessor in a notice served under Section 90; (d) authorise 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 8 on any conditions as to expenses, damages, compensation or any other relevant matter as the court thinks fit. (3) If under the terms of a charge, the chargor is entitled or is to be permitted to pay the principal sum secured by the charge by installments or otherwise to defer payment of it in whole or in part but provision is also made in the charge instrument or any collateral agreement for earlier payment of the whole sum in the event of any default by the chargor or of a demand by the chargee or otherwise, then for purposes of this Section the court may treat as due under the charge in respect of the principal sum secured and of interest on it only the amounts that the chargor would have expected to be required to pay if there had been no such provision for earlier payment. (4) A court must refuse to authorise or approve a remedy if it appears to the court that— (a) the default in issue has been remedied; (b) the threat to the security has been removed; (c) the chargor has taken the steps that the chargor was required to take by the notice served under Section 90; and (d) the chargee has taken or attempted to take some action against the chargor in contravention of Section 90 (4). 35. The courts have in the past held that a statutory notice is only issued once [provided it is compliant and had been properly served]. 36. In the case of Ragui v Barclays Bank of Kenya Ltd6 the court held that a statutory notice addressed to a deceased person is invalid and had no effect. In this case the statutory notice ought to have been served upon the administrators of the estate. 37. Under Section 104 the Court has wide powers. The underlying theme is that the court should strive to do justice. Once a statutory notice has been issued and suit filed, the court can allow, dismiss or grant an injunction on terms. At the end of the day, there must be finality in litigation. A chargee should not be expected to keep on issuing fresh notices every time as this would invite fresh litigation and will contravene the spirit of Article 159 of the Constitution. Way forward 38. Let us take the position of any financial institution as a chargee. The onerous impositions under the Land Act will simply mean that certain citizens will find it impossible to get any financial loans and use land as security. If the land is customary land, then under Section 104 (1) (iii), the charge must show as having had regard to the age, means and circumstances including health and the number of dependants of the chargor. In addition the chargee must establish if the chargor will be rendered landless or homeless or if the chargor will have any alternative means of providing for himself and family. With such factors in force, what financial institution will advance a loan with security being customary land? The same applies with respect to a dwelling house [Section 104 (1) (b)]. The chargor is supposed to establish if taking possession, leasing or appointing a receiver will impose undue disturbance! But is that not the natural 6 [2002]1 KLR 647. 9 consequence of a default that will invite such remedies? Section 104 needs to be relooked at and amended. 39. The court when faced with an injunction must:   Remember the underlying theme of a land being offered as security- it becomes a commodity liable to be sold.  commercial transaction then the chargor knows what a default will invite. The courts have held that there is no sentimental value attachment to land. The minute it becomes security in a Any injunctions filed must be dealt with expeditiously and in a commercial and pragmatic manner. Banks lend money belonging to other customers with a view to profit. It would be disastrous if chargees are frustrated when it comes to realizing their securities. Kenya will get a reputation where land offered as security should be  treated like the plague. If the chargor files suit and seeks injunctive relief and the court finds that the debt is due but gives the chargor time, both parties should attempt an amicable settlement to see if a consent judgment is entered with a default clause. This works best where the chargor seeks time to put his house in order. However, it will not work if the chargor is obstinate. The court should exercise its discretion judiciously. The bottom line when a chargor files an injunction is to ask him how much he borrowed, how much he repaid and how he intends to pay the debt. The writer was once involved in a case where borrower was a company that was lent the sum of Kshs. 75 million, put up a block of flats and repaid back Kshs. 2 million despite having received rental income. When the bank proceeded to appoint a receiver, all hell broke loose and it took more than 2 years before the property was sold by private treaty. These are the kind of borrowers who abuse the court process. Refusing to pay a debt should is equivalent to obtaining by false pretenses. You borrow with no intention of repaying the debt. Is it not criminal when you turn around and accuse the chargee of all manner of ills? Judicial decisions on statutory notices under the repealed Acts 40. The courts have jealously safeguarded the right of the chargor where the realization process is set in motion by the service of a statutory notice. The decisions over the years simply reiterate the need to have a compliant statutory notice. 41. Trust Bank Ltd v Eros Chemist7 This is a 5 bench Court of Appeal decision that was specifically set up to address the law on the format of a statutory notice. The appeal considered the format of a statutory notice issued by the bank which gave a period of 14 days to make payment which was in contravention of the Section 69 A (1) of the Transfer of Property Act. It expressly overturned its previous decision in the case of Russell Company Ltd v Commercial Bank of Africa Ltd. The Court of Appeal held as follows: ‘The starting point of any discussion as to whether there should be an express statutory requirement that a notice should refer to the three months period is to consider what the object of the notice is. In our judgment, the notice is to guard the rights of the mortgagor because if the statutory right of sale is exercised the mortgagor’s equity of redemption would be extinguished. This would be a serious matter. The law clearly 7 Civil Appeal No. 133 of 1999 10 intended to protect the mortgagor in his right to redeem and warn of intended right of sale. For that right to accrue statute provided a three months’ period to lapse after service of the notice. In our judgment, a notice seeking to sell the charged property must expressly state that the sale shall take place after the three months’ period. To omit to say so or to state a period less than three months for sale (as in the Russell case) is to deny the mortgagor a right conferred upon him by statute. That clearly must render the notice invalid. In our judgment, with respect, there is a mandatory requirement that a statutory right to sell will not arise unless and until three months’ notice is given. We consider that the provision as to the length of the notice is a positive one and obligatory one; failing obedience to it a notice is not valid. That being so , it seems to us that in failing to have the notice to say so, the Bank failed to give a valid notice, with the result the right of sale did not accrue under such notice. (emphasis mine). What directions does the court give if the statutory notice is defective? 42. Essentially the courts require that a fresh compliant statutory notice be served. There is no need to grant an injunction pending determination of the suit because: (a) Court’s must be cognizant of the fact that a defective notice or one that may not have been served should not lead to an injunction being granted until the determination of the suit. This is the what the Court of Appeal did in the case of Kenya National Capital Corporation Limited v Agro Development Company Limited 8 where the judge in the superior court granted an injunction pending determination of the suit because the bank had not served the notice to the District Commissioner in compliance with Section 69A (1)(d) of the ITPA. This notice required service of the notice in respect of agricultural land on the District Commissioner at least one month before the sale. It was not disputed by the bank that such a notice had not been served. The Court of Appeal held: ‘’The learned judge instead of postponing the sale until such time after the District Commissioner had been properly informed of such sale, proceeded to grant an injunction restraining the defendant from advertising, selling or otherwise dealing with L.R No. 5865 Taveta District the subject matter of the suit until the conclusion of the same…In doing so the learned judge erred. He could not have, at that time, granted the interlocutory injunction. He could only have ordered postponement of the proposed sale until the defendant complied with that requirement.’’[emphasis mine]. 43. The above provisions of Section 104 have greatly expanded the power of the court. The past cases have dealt with the issue of a defective statutory notice in the following manner. 44. Kanorero River E state Ltd & 3 Others v NBK9 was a case where Justice Ringera (as he then was) considered the implication of a defective notices issued by the bank: ‘I further accept that in this case no valid written demand was made. The notices issued on 18.5.99 were not such demand notices. They were intended to be the statutory notices under Section 74. But even if they were intended to be demand notices under Section 65 (2), they were invalid as they gave a period of 90 days from 8 9 Civil Appeal No. 242 of 1997. [2002] 2 KLR 207 11 their authorship instead of 90 days from the date of service. And it matters not that 3 months or even 3 years have elapsed since their issue. A demand is either valid or invalid ab initio. An invalid demand cannot be validated by subsequent events. From the foregoing it follows that the 1st and 2nd Defendants were not in default within the meaning of the law and no statutory notices under the provisions of Section 74 could be validly issued to them. The notices issued on 10.7.2001 do not therefore pass the test of legality…the 1st and 2nd Plaintiffs have a very strong prima facie case with a probability of success at the trial. I would not be deterred by any argument that that National Bank could compensate them in damages if it failed at the trial. In my opinion no party should be allowed to ride roughshod on the statutory rights of another simply because it could pay damages. Indeed in this case, not even counsel for the defendant opposed the application on the grounds that damages were an adequate remedy and the defendant was in a position to meet them.’ Phase Two of the Statutory Process- the 40 day notice and the question of Locus standi 45. After the statutory notice period has lapsed pursuant to Section 90 of the Land Act, a 40 day notice evidencing the intention of the chargee to exercise the statutory power of sale must be given pursuant to Section 90(2) of the Land Act. Section 90 (3) lists the various persons upon whom the notice must be served. 46. There are several instances when the property in dispute is charged to the bank by say the guarantor and the primary debtor rushes to court to seek an injunction. Unless the plaintiff seeks relief under Section 103 of the Act, he has no locus standi to seek injunctive relief. 47. The question that arises is whether the person has the locus standi to file suit. This was the issue for determination in the case of Nairobi Mamba Village v National Bank of Kenya10 In dismissing the injunction application, the court held: ‘A party seeking to prevent alienation, wastage or damage to the property in dispute under Order XXXIX of the Civil Procedure Rules had to establish that it had legal rights in such property. In this instance, the Plaintiff could not properly seek to restrain the chargee from selling the charged property as the intended sale was to be carried out pursuant to the exercise of the contractual and statutory power of the chargee contained in a charge to which the Plaintiff was not a party. The only person who could legitimately challenge the exercise of the power of sale was the chargor. Though the Plaintiff had an interest in the charged property as it was both the security for its indebtedness and location of its business, neither of those interests amounted to a propriety interest in the property. Neither of the cases cited by the Plaintiff showed that a principal debtor could sue and obtain relief on behalf of the guarantor. As such the Plaintiff had no standing to the question of the exercise of the power of sale.’ Judicial Intervention when the statutory power of sale has arisen- a clog on the realization process? 10 [2002] 1 EA 197 decided by Justice Ringera(as he then was) 12 48. The court is given the power to dispense with various remedies and reliefs that were never envisaged in the repealed Acts. However, let us examine how courts have viewed the charging of property. Section 80 of the Land Act states that a charge of land takes effect as security only and shall not operate as a transfer of any interests or rights in the land. Section 80(3) makes it mandatory for every charge to contain the terms and conditions of sale, an explanation of the consequences of default and the reliefs that the chargor is entitled to including the right of sale. Sale by public auction or private contract 49. Section 98 is concerned with the powers incidental to the power of sale. The chargee has the option of:  sale by private contract at market value [Section 98 (1) (d);  or public auction with reserve price [Section 98 (1) (e)].  Under Section 98(g) , subject to any other conditions that the chargee shall think fit, having due regard to the duty imposed by Section 97 (1) which, inter alia, includes the duty of care to the chargor, any guarantor, any chargee under subsequent charge or under a lien to obtain the best price reasonably obtainable at the time of sale. Public Auction 50. If the chargee makes the conscious decision from the outset that it wants to exercise the statutory power of sale by public auction, then this decision must be considered early. 51. The practical way to go about this is to have the auctioneer issue the 45 day notification of sale on the same day or immediately thereafter, after the bank issues the 40 day notice under Section 96 (2) of the Act. Both notices can run concurrently. 52. An election by the chargee to go by the public auction route cannot later be changed mid-stream leading to a sale by private contract. You cannot later stop the auction process and dispose of the property by private contract without the consent of the chargor. Notification of sale by auctioneer only issued once 53. Joseph Kiarie Mbugua & Ano. v Garam Investment Limited11 was a decision that considered the number of times an auctioneer’s statutory notice was to be issued. The court also considered if a statutory notice under the relevant land Act was to be issued more than once. As the decision raised very important points of law, the same shall be set in paragraphs. (a) The defendants relied on the authority of NATHAKA MONJI RAI –VS- STANDARD CHARTE RE D BANK (K) LIMITED & ANOTHE R, HCCC NO. 830 OF 1999, to support their proposition that they were not obliged to issue any new notifications of sale. 11 [2006] Eklr. 13 In that case, the plaintiff had taken up a point of law that was similar to the one in this case. In other words, the plaintiff had contended that by failing to issue a new 45 days' notification of sale, specifically relating to the impending public auction, the auctioneer was in breach of Rule 15 (d) of the Auctioneers Rules 1997. In response to that contention, the defendant in that case stated that as a similar notice had been served on the plaintiff, in relation to an earlier attempt to realise the security, another notice was superfluous. The court was thus called upon to determine whether or not a 45 days' notification of sale was mandatory even when there was a previous one, in relation to a sale which was then halted, either by consent of the parties or upon an order of the court. In a reasoned ruling, the Hon. Onyango Otieno J. (as he then was) expressed himself thus; " The Auctioneers Act seems to me to be silent as to whether once an auction scheduled for a particular day is suspended or stopped temporarily, the Auctioneer should, on the next scheduled sale, go through all the rules all over again. One may ask, once an auctioneer has got the instructions letter in respect of the sale of a particular property, and he had complied with all the rules, and then the sale is suspended or temporarily stopped at the eleventh hour, should the auctioneer go through all the rules again when he is again instructed to go ahead with the sale on another day? In case of notification of sale, should he issue a fresh one? In my opinion, there are some rules that he needs to go through once again, but I respectfully think that there are some rules which to repeat, would make a mockery of the rules and may make it difficult if not impossible for the judgement creditors or mortgagees to realise their power of sale, and thus may make it impossible for the judgement creditor to enjoy the fruits of judgement given in his favour or the mortgagee, to realise the recovery of the money loaned. [emphasis mine]. However, in my humble opinion, once he (the auctioneer) has received such letter of instructions, and has given the debtor 45 days' notice, it would be unfair to insist that if that sale is suspended, and he gets another letter instructing him to proceed with the sale of the same property, in respect of the same loan and from the same mortgagee, he should give the same 45 days' notice afresh. I think one has to look at the purpose for such a notice. In my opinion, such a notice is as clearly stated in the rules, to give the debtor opportunity to redeem the property. I cannot see any good reason for giving the same opportunity every time the sale does not go through." From a logical perspective, I would agree wholly with the learned judge. If it was mandatory that 45 days' notifications of sale be issued every single time when the chargee or the judgement-creditor wished to publicly auction immoveable property, borrowers and judgement-debtors would never persuade their creditors to put-off sales, so as to allow the debtors an opportunity to redeem their properties. Thus, a strict application of rule 15 (d) of the Auctioneers Rules would actually be counter-productive to the borrowers and judgement-debtors. Statutory notice only issued once (b) Meanwhile, I note that in arriving at the decision cited above, the Hon. ONYANGO-OTIENO J. borrowed a leaf from the sentiments of the Hon. APALOO J. A. (as he then was) in the case 14 of GE ORGE GIKUBU MBUTHIA –VS- JIMBA CRE DIT & ANOTHE R, CIVIL APPE AL NO. 111 OF 1986 In that case, the Court of Appeal addressed the provisions of Section 74 of the Registered Land Act, which mandates the issuance of a statutory notice to a chargor before his security can be put up for public auction. The question that then arose for determination was whether the chargee, who had given a statutory notice, who then suspended an intended sale on the basis of the chargor's promises to make payment, would be obliged to issue another statutory notice before he could have the charged property sold subsequently, if the chargor failed to honour his promises. The learned judge of appeal held as follows; " It is plain that Section 74 did not impose on the chargee, the giving of more than one notice and there is no sound policy reason why he should be obliged to give fresh notices to the chargor any time a sale was suspended to accommodate him. If such were a legal requirement, no chargee in his right mind would suspend a projected sale, as a matter of favour or indulgence to a defaulting mortgagor." [emphasise mine]. 54. Now Section 97 deals with the duties of the chargee exercising the statutory power of sale. Of special note is Section 97 (3) to (6)which reads [relevant Sections have been highlighted]: (3) If the price at which the charged land is sold is twenty-five per centum or below the market value at which comparable interests in land of the same character and quality are being sold in the open market— (a) there shall be a rebuttable presumption that the chargee is in breach of the duty imposed by subsection (1); and (b) the chargor whose charged land is being sold for that price may apply to a court for an order that the sale be declared void, but the fact that a plot of charged land is sold by the chargee at an undervalue being less than twenty-five per centum below the market value shall not be taken to mean that the chargee has complied with the duty imposed by subsection (1). (4) It shall not be a defence to proceedings against a chargee for breach of the duty imposed by subsection (1) that the chargee was acting as agent of or under a power of attorney from the chargor or any former chargor. (5) A chargee shall not be entitled to any compensation or indemnity from the chargor, any former chargor or any guarantor in respect of any liability arising from a breach of the duty imposed by subsection (1). (6) The sale by a prescribed chargee of any community land occupied by a person shall conform to the law relating to community land save that such a sale shall not require any approval from a Community Land Committee. (7) Any attempt by a chargee to exclude all or any of the provisions of this Section in any charge instrument or any agreement collateral to a charge or in any other way shall be void. 55. The bottom line is to achieve a price of more than 75%. 15 Duty to obtain the reasonable price 56. At common law, the courts have always imposed a duty of care on the chargee when exercising the statutory power of sale. Some of the highlights below are from precedent setting cases. 57. KCB V Osebe12 Holding no. 2 at page 54- it was unrealistic for the bank to see its duty as covering only its own outstanding debt. 58. Mbuthia v Jimba Credit 13mortgagee must act bona fide and obtain the proper price. 59. Cuckmere v Mutual Finance14.See holdings at page 70. Bank can be guilty of negligence. Not enough to leave to agents. Bank negligent in not providing data on the planning permission of development of flats which affected the bid price. The Court of Appeal also held: ‘’A mortgagee was not a trustee of the power of sale for the mortgagor and, where there was a conflict of interests, he was entitled to give preference to his own over those of the mortgagor, in particular in deciding on the timing of the sale; in exercising the power of sale, however, the mortgagor was not merely under a duty to act in good faith i.e honestly and without reckless disregard for the mortgagor’s interest but also to take reasonable care to obtain whatever was the true market value of the mortgaged property at the moment he chose to sell it.’’ 60. AIB Finance v Debtors15 duty of bank to ensure value of property maximized to avoid negligence. The Receiver of Income 61. Section 92 of the Act requires the giving of at least 30 days notice for the appointment of a receiver of income under the charge. For the first time a receiver of income’s remuneration is pegged at 5%. 62. However, there is no similar time requirement when a receiver and/or manager is appointed under a debenture. The normal practice is that the debtor is served with a demand notice requiring immediate payment and if payment is not made for the full debt on the spot then the receiver and/or manager is appointed forthwith. 63. In Madhupaper v Kerr the Court of Appeal was faced with a scenario where the plaintiff raised all manner of arguments regarding the wealth of its security and the jeopardy placed on its work force. The court found no sympathy for the exaggerated and baseless inflated values of the debtor’s assets. The Court of Appeal held: ‘It is correct law that a debenture holder which has this right is under no duty to refrain for (sic) exercising its rights because doing so might cause loss to the company or its unsecured creditors. …so there could not be any duty to refrain because the company is bent on building up other business which the debenture holder is sure is doomed to failure from the outset. The Bank asserts the principal moneys and interest secured because (sic) immediately payable and fell due to 12 [1982-88] 1 KAR 48 [1986-1989] EA 340 14 [1972] 2 ALLER 633 pages 69-81 15 [1997] 4 ALL ER 67713 16 be discharged without demand under clause 11 when it discovered the company was in breach of its covenant in clause 6 in the debenture because it was no longer banking solely with the Bank. … It is one of those cases, in our judgment, where it would be wrong to grant an injunction pending the appeal. It would probably inflict greater hardship then it would avoid. The Chargee as a trustee of the surplus of the sale proceeds. 64. Halsbury’s Laws of E ngland16 addresses the application on money under statutory power of sale. ‘Money arising from a sale is applicable in the first instance to the discharge of any prior incumberances to which the sale is not made subject or to the payment into court of a sum to meet any prior incumberance; the balance or the whole, as the case may be, is held by the mortgagee in trust to be applied, first, in payment of all costs, charges and expenses properly incurred by him as incident to the sale, or any attempted sale, or otherwise; secondly, in discharge of the mortgage money, interest and costs, and other money if any, due under the mortgage; and the residue is to be paid to the person entitled to the mortgaged property or authorized to give receipts for the proceeds of sale.’ [emphasis mine]. 65. B.B Mitra on the Transfer of Property Act 188217 addresses the topic of appropriation of sale proceeds. ‘After applying the sale proceeds to the payment of the costs of the sale, and in liquidation of the mortgage-money, the mortgagee must refund the surplus sale proceeds to the mortgagor. With regard to such money he is in the position of a trustee for the person entitled to it and he must pay the money to such person immediately after the sale; otherwise he will be liable to pay interest at 6% per annum (court rates).’[emphasis mine]. Power of Court to re-reopen certain charges 66. Section 105 empowers the court to reopen a charge of whatever amount is secured on a matrimonial home in the interests of doing justice between the parties. Section 106 1 (c), (2) and (3) also empowers the court to re-open charges in the following instances in respect of: i) charges provided by one or more specific chargees where there is prima facie evidence of a pattern of unfair dealing and practices by that chargee or those chargees; or (ii) a chargee, being a corporate body, that appears to exercise discrimination against chargors on account of their gender, or by refusing to grant charges to persons on account of their gender except that a chargee, being a corporate body that is implementing any programme, approved or assisted by the national or county governments, designed to assist women to improve their economic and social position by providing them with advances secured by a charge of land shall not be taken to be acting in discriminatory manner if the advances under that programme are made only to women. 16 th 4 Edition Volume 32 at paragraph 739. 17 At page 710 paragraph 20. 17 (2) In reopening the charge, the court may— (a) direct that the charge shall have effect subject to modifications that the court shall order; (b) require the chargee to repay the whole or part of any sum paid under the charge or any related or collateral agreement by the chargor or any guarantor or other person who assumed an obligation under the charge whether it was paid to the chargee or any other person; (c) require the chargee to pay any compensation to the chargor which the court shall think fit; or (d) direct the chargee, being a corporate body to cease acting in a discriminatory manner with respect to the granting of charges. (3) In considering whether to exercise the powers conferred on it by this Section, the court shall have regard to— (a) the age, gender, experience, understanding of commercial transaction, and health of the chargor at the time when the charge was created, if the chargor is an individual; (b) the financial standing and resources of the chargor relative to those of the chargee at the time of the creation of the charge; (c) the degree to which, at the time of the creation of the charge, the chargor was under financial pressure and the nature of that pressure; (d) the interest rates prevailing at the time of the creation of the charge and during the continuation of the charge and the relationship of those interest rates to the interest rate applying from time to time in the charge; (e) the degree of risk accepted by the chargee, having regard to the value of the charged land and the financial standing and other resources of the chargor; (f) the importance of not undermining the confidence of reputable chargees in the market for charges; and (g) any other factors that the court considers relevant. 67. For the first time, statute has allowed the courts to interfere with the freedom of contract. However, it appears that the chargee is facing blatant discrimination if the court decided to re-open a charge and impose draconian terms. One can argue that the chargee be discriminated under Article 27 of the Constitution which promotes equality and freedom from discrimination in all its forms and Article 40 on property rights. For instance, let us critique some of the impositions: a) the age, gender, experience, understanding of commercial transaction, and health of the chargor at the time when the charge was created, if the chargor is an individual; [does one need to go with his academic and health certificates?] (b) the financial standing and resources of the chargor relative to those of the chargee at the time of the creation of the charge; [this actually is negative discrimination against the small time borrowers who will never get loans on account of their poor financial standing even though they may have land]. (c) the degree to which, at the time of the creation of the charge, the chargor was under financial pressure and the nature of that pressure; 18 [one would imagine that the chargor wants a loan to reduce the pressure!] (d) the interest rates prevailing at the time of the creation of the charge and during the continuation of the charge and the relationship of those interest rates to the interest rate applying from time to time in the charge; [interest rates are not regulated and this will conflict with the Banking Act. It is not the business of the court to re-write a contract which would conflict with the bank’s rights to charge interest. There is freedom of choice and a chargor can go to any financial institution and agree to be bound by the contractual terms. After all, the in duplum Rule has the force of law in Kenya]. (e) the degree of risk accepted by the chargee, having regard to the value of the charged land and the financial standing and other resources of the chargor; CONCLUSION 68. There is certainly room for improvement and amendments to the Land Acts. The challenges out there are numerous and it is hoped that the both the bar and the bench shall work together to ensure that justice is achieved without undue regard to technicalities. At the end of day courts must be guided by the underlying spirit of Article 159 of the Constitution and be seen to do substantive justice. Use of court mandated mediation should also be encouraged. At the end of the day, every chargor wants a soft landing while the chargee wants the debt repaid- whether in full or discounted. Court mandated mediation may provide the panacea to bring the parties to the negotiating table. Allen Waiyaki Gichuhi FCIArb Advocate © 2013 19