David Katana Ngomba v Shafi Grewal Kaka [2014] KECA 892 (KLR)

IN THE COURT OF APPEAL AT MOMBASA

CORAM; KARANJA, OUKO & KIAGE JJ.A

CIVIL APPEAL NO.43 OF 2011

BETWEEN

DAVID KATANA NGOMBE................APPEALLANT

SHAFI GREWAL KAKA........................RESPONDENT

(Appealfrom Judgment and Order of the High Court of Kenya at Malindi (Lady Justice H.A Omondi ) dated 14thDecember,

2010

in

H.C.C.C. NO. 66OF 2006)

**************

JUDGMENT OF THE COURT

This  is  an appeal  against  the judgment  of the High Court (H. A. Omondi, J) delivered on 14th December, 2010 declaring Shafi Grewal Kaka (the respondent)  the registered  owner of the suit  property, KILIFI/ROKA/1098and an order directing David  Katana Ngoma(the appellant)to vacate the said property  within ninety (90) days of the date of the judgment.

The relevant  antecedent facts  giving rise  to this  appeal  as can be discerned from the pleadings  are not contested. The respondent’s case was that he learned through  a public advertisement in two local daily newspapers that the appellant’s  property known as  KILIFI/ROKA/1098,  measuring

5. 017 hectares or thereabouts together with all the developments thereon was due for sale in a public auction on Friday of 30th August, 1996 at 11. 00am at the offices of the auctioneers known as Nadhia  Limitedsituated at Utalii House,  1st   floor, room 101. The advertisement  was to the effect  that the auctioneer had been instructed to sell the suit property by the Industrial & Commercial Development Corporation (ICDC)the Chargee, (not a party to the suit) who were exercising their statutory power of sale. The respondent being interested  attended  the auction on the date,  at the time  and place advertised and upon emerging the highest bidder, did purchase the property at Kshs. 530,000/=, whereupon he was issued with the Certificate of Sale dated  5th  December,  1996 by the said  auctioneer  and subsequently  upon transfer issued with certificate of title. Following this transfer, the respondent  issued  demand notices  through his  then advocates  to  the appellant  to vacate the property, but the appellant  sought his  indulgence which he acceded to on humanitarian grounds and granted him six months to vacate the suit property.

The respondent's further contestation was that after waiting for over ten years,  the appellant  not only reneged  on his  promise  to vacate  the  property but also reasserted his claim to be the registered owner of the suit property.

The appellant on his part admitted that the suit property  was used as security for a loan of Kshs. 200,000 advanced to Tototo Maize Millers in which  he was a director but maintained that the loan was fully repaid and the account  had a  credit of Kshs.  977/= . He  also  denied ever asking  for indulgence  from the respondent  to stay  on the property while  making arrangements to vacate; that if the subject property was advertised and sold to the respondent through  a public auction as alleged, then the sale was not only fraudulent but also fundamentally flawed as he was never issued with the requisite  statutory  notices  before  the sale  and that the auction was conducted in an office (not a public place) in Nairobi far away from Kilifi where the suit property is situated.

Having been frustrated by the appellant in the manner outlined above, the respondent instituted HCCC NO. 66 of 2006 against the appellant for vacant possession.

After hearing the parties and their advocates’ submissions, and upon consideration of the authorities cited by counsel, the learned Judge entered judgment in favour of the respondent and made the following determination on the broad issues raised in the action.

“What is  presented  before this  court is  a printed cutting purporting to  be an advertisement-  it is  not clear which newspaper carried out the advertisement or even the date of such advertisement. I however agree with Mr. Wameyo that it was not the duty of the Plaintiff to issue a Statutory Notice to the Defendant, that lay squarely with ICDC. However the existence of the statutory notice becomes crucial  because the validity of the sale revolves around  it as was aptly observed in the HCCC  293 of  2006, Elizabeth Wambui Njuguna  v. Housing Finance of Kenya Limited...

...The omission to  serve a valid statutory notice  is a fundamental  breach of statute.  The only catch here is  that Defendant  has not joined  ICDC  to this  suit,  so as to  make them accountable regarding  the statutory notice and this is what  distinguishes   the  present scenario   from  Wambui Njuguna case,  because  in the earlier case,  the finance institution was actually a defendant.

..Anotherdistinguishingfeature is  that the Defendant here has not filed any application or counter  claim  to set aside the sale or declare the same  null and void. If ICDC  had been enjoined  as party to this suit, it would have been under an obligation  to  show  how the statutory  notice   of  sale  was served, and its non joinder, thus making the issue raised by the defendant on mandatory  statutory notice of sale between him and the Plaintiff, to be a non-starter.."

On the contention  that the sale  was  vitiated by fraud, the learned

Judge said:

"..Was this  a  fraudulent deal between  the Plaintiff, the auctioneer  and ICDC?  The particulars  of fraud were not pleaded by the defendant..again  the non joinder of the finance institution and the auctioneer makes his claim end up being a chase after  the wind...

...Mr. Kiarie argues that this was just an arrangement in the offices of an auctioneer  based in Nairobi and which is why land in Kilifi was being  sold  in Nairobi...yet  again without

pleadingthe particulars  of fraud and ICDC,  that remain allegations  from the bar...what is  presented  is  that  the defendant  did secure  a loanfrom ICDC  using  his  title  as security...the loan was for Ksh.200,000/= and he executed...

...Plaintiff has   produced the  charge instrument   to demonstrate how he acquired the property by way of transfer from ICDC after the auction. Really the Defendant can only have himself to blame.   If he was dissatisfied with the actions by ICDC, then he should have made them a party..No fault can be visited upon the Plaintiff for all the woes Defendant alleges...."

It is this finding that provoked this appeal in which eleven grounds have been raised. By a consent order  of this court dated 20th March, 2014, both parties  agreed  to have the appeal  determined  by way of  written submissions. Both parties appeared before us on 21st  of July 2014 when Mr. Omagwa  Angima  for  the appellant  and Mr.  William  Wameyo for  the respondent further found no need, in view of the clear issues in controversy, to highlight the written submissions but simply adopted them.

This is a first appeal.  We are, in law obliged to analyze the evidence presented  in  the superior  court afresh,  in  order to come  to our own

independent conclusion, as was observed  in the case of Selle and Another

vs. AssociatedMotors Boat Company Ltd andOthers  (1968) EA 123, where the court stated the jurisdiction of this court on first appeal as follows:

“An appeal  to  this  Court from a trial of theHigh  Court  is   by   way  of  retrial  and  theprinciples upon which this Courtactsin such an appeal are well settled.  Briefly put they are that this   Court  must   reconsider the  evidence, evaluate it itself and draw its own conclusions though it should always bear in mind that it has neither  seen nor heard  the witnesses and should make due allowance  in this respect.  In particular this Court is not bound necessarily to follow the trial Judge’s  findings  of fact if it appears either that he has clearly failed on some point  to   take  account of  particular circumstances  or probabilities  materially to estimate the evidence or if the impression based on the demeanour  of a witness  is  inconsistent with the evidence in the case generally  (Abdul Hemeed Seif vs. Ali Mohamed Sholan (1955), 22

E.A.C.A.270).”

We  have read  and considered   the record of  appeal, the rival submissions and the relevant law as articulated in the written submissions. Of the eleven (11) grounds raised in this appeal, we consider the following four to sum up the appellant’s grievance with the decision of the High Court. (1)Whether the statutory power of sale was properly exercised by

ICDC.

(2)Whether fraud was committed and whether the respondent was involved.

(3)Whether failure to join ICDC in the suit was fatal.

(4)Whether the learned Judge misdirected himself on the evidence thereby arriving at a wrong conclusion.

The appellant in this case was one of the directors of Tototo Maize Millers who had applied for a credit facility in the sum of Ksh. 200,000/= from ICDC.  The said loan was secured by the suit property owned by the appellant.  It  appears  that Toto Maize Millers  failed in its  obligation to service  the loan provoking the chargee  (ICDC) to exercise  its  statutory power of sale under  Section74of the repealed Registered Land Act (Cap

300) by selling the suit property through an auction.

Section74of  the Registered  Land Act  Cap (300)which was applicable at the time provides  as follows:

74. (1) If default is made in payment of the principal sum or of any interest or any other periodical payment or of any part thereof, or in the performance  or observance of any agreement  expressed or implied in any charge, and continues for one month, the chargee may serve on the chargor notice in writing to pay the money owing or to perform and observe the agreement, as the case may be.

(2)  If  the  chargor does  not   comply,   within   three months of the date of service, with  a notice served on him under sub-section (1), the chargee may –

(a) appoint  a receiver  of  the  income  of the charged property; or

(b) sell the charged property:

Provided thata chargee who has appointed a receiver may not exercise the power of sale unless the chargor  fails to comply, within  three months of the date of service, with a further notice served on him under that subsection.(Emphasis ours)

From the above provision the chargee,in this case ICDC was entitled to two remedies following the default by the chargor,either,

(a)  to appoint a receiver ; or

(b)  to exercise its statutory power of sale.

Before the chargeeinvokes the use of any of the two remedies above, by dint of Section  74(1) of RLA, the chargor must be in default for a continued  period of one month and having been served  with a  notice in writing requiring him to pay the principal sum.  Even then, it is only after the chargor fails to comply within (3)three months of the date of service with the aforementioned notice, that the chargee may either appoint a receiver or sell the property charged in exercise of its power of sale.

The sole accusation against the respondent is that he participated in a fraudulent sale.  Mr. Angima, submitted that there were no statutory notices hence Section 74of the Registered Land Act was not complied with. He also submitted  that before participating in the sale, the respondent should have investigated the title or made inquiries to ensure that indeed requisite default notices were issued to the appellant.

Mr. Wameyo  on the other hand argued  that the respondent  is  an innocent purchaser for value without notice; that it was the chargee, (ICDC) and not the respondent that was duty-bound to issue the requisite notices. We respectfully  agree  that the obligation to issue  statutory  notices  ahead  of imminent exercise of power of sale rests with the chargee.The question that  naturally follows is whether ICDC complied with Section 74of the RLA.

That question ought to have been put to ICDC. But ICDC was not a party to the suit and we cannot assume either way that there was or there was no compliance with Section 74aforesaid.  We, however, know that in terms of Section 77 (3)and (4)even if we were to find that there was irregularity in the exercise of the respondent’s power of sale, in the circumstances of this case the appellant’s remedy would only be in an award of damages.   The section provides that:

77. (3)  A transfer  by a chargee in exercise of his power of sale shall  be made  in the prescribed  form, and the Registrar may accept it as sufficient evidence that the power   has  been  duly   exercised,   and any person suffering  damage by an irregular exercise of the power shall have his remedy in damages only against theperson exercising the power.

(4) Upon registration of the transfer,  the interestof the chargor as described therein shall pass to and vest in the transferee freed and discharged from all liability on account of the charge, or on account of any other encumbrance to which the charge has priority (other than a lease, easement or profit to which the chargee has consented in writing).(our emphasize)

The expression of this Court in the case of Mbuthia vs. Jimba Credit

Finance Corporation& Another[1988] KLR 1 bears repetition. In that appeal Platt and Masime, JJA held in the Court’s majority decision that a purchaser who had not registered his interest would be treated differently from one who had concluded the conveyance by registration of the transfer in his name. It is illustrative however that the entire bench was in agreement that the equity of redemption is lost on the completion of a valid agreement for a valid sale and eventual registration.

We cite  the case  of Captain Patrick Kanyagia and Another vs.Damaris Wangechi and others 1995 eKLR, Civil Appeal No. 140 of 1993 only to emphasize this point. Shah, JA who delivered the leading judgment reiterated that:-

“Although  Apaloo,J.A. (as then  was) differed  with  Platt, J.A. and Masime,  Ag. J.A. (as  they  then  were) (in  the Mbuthia vs. Jimba Credit Finance Corporation)  case) in the end result, all three Judges were adidem on the issue as to the  extinguishment  of the  equity  of redemption  upon the execution of a valid  contract  of sale in the exercise of Statutory Power of Sale.  That is the law when the land is held under Registered Land Act (Cap 300).”

The learned  Judge  was  categorical  that no duty was  cast  on an intending purchaser at an auction sale, properly advertised, to inquire into the rights  of the mortgagee to sell.   Accordingly, we find support in the above authorities and hold that the respondent as an intending purchaser at an auction sale had no duty to inquire into the rights of the chargeeto sell. The appellant  lost his  right of redemption  under Section 72of the RLAwhen the property was sold by public auction, transferred and consequently registered in the respondent’s name. In this case, by seeking remedies from  the respondent  and not ICDC, the respondent’s  sword is  directed  at the wrong target, insulated by a statute.

Contrary to the appellant's  submissions,  the record  reveals that the evidence submitted by the respondent in support of his case included a copy of the advertisement  from a  newspaper,   a  Certificate  of Sale  from the auctioneer  dated  5th  December,  2006, transfer  by chargee  in exercise  of power of sale and a Title Deed No. KILIFI/ROKA/1095in the name of the respondent.  The respondent gave oral evidence that the advertisement was carried in both the Nation and the Standard Newspapers. The evidence was examined by the learned Judge who had the benefit of a firsthand evaluation of the documents  to ascertain  their authenticity  and veracity and in the absence of any contradictory  evidence from the appellant, we are convinced that the learned Judge made a proper determination that the sale was regular.

Regarding submissions that the property was sold in Nairobi and not at the coast where it is situated, we note that the Auctioneers Act (No. 5 of 1996) which was in force at the time of the sale did not specifically restrict the business of an auctioneer to a particular area.  It would, however, appear from the provisions  of section  20of that Act the place  of business  in respect of which the licence is granted and the district or districts to which it related had to be shown in the register of licences. From this, therefore,an auctioneer would have multiple places of business in various districts. The auctioneer in this appeal was not a party  to the suit the subject of this appeal and there is no evidence that his licence did not cover Nairobi and/or Kilifi.

Under that law, it was enough to advertise the date, time and place of sale.  Section21only required that such sale had to take place on the date, at the time and place so advertised.  This, from the evidence on record was complied with.  Fraud as against the respondent was neither particularized, nor proved although pleaded.  No evidence was presented to show that the respondent, either alone or in collusion with ICDC and/or the auctioneer did any act that amounted to fraud.

Section 143(1)of RLAprovides that:

“(1) Subject  to subsection  (2), the court may order rectification of the register by directing that any registration be cancelled or amended where it is satisfied that any registration (other than a first registration) has been obtained, made or omitted by fraud or mistake.

(2)    The register shall not be rectified so as to affect the title  of a proprietor who is in possession and acquired the land, lease or charge for valuable consideration, unless   such   proprietor hadknowledge of the omission, fraud or mistake in consequence of which the rectification is sought, or caused such omission, fraud or mistake or substantially contributed to it by his act, neglect or default.”

Further, by the provisions of Sections 108 & 109of the EvidenceAct (Cap 80),the burden of proof of the allegations squarely fell on the appellant who failed to discharge it.

It  is  a  firmly  established  rule  of  pleading that a  judgment and remedies must flow from pleadings and that a court of law will determine

only pleaded issues  .In Galaxy Paints Company Ltd V. Falcon GuardsLtd, Civil Appeal No. 219 of 1998, the Court stressed this point saying:-

“Theissues for determinationin a suit generally flowed from the  pleadings  and the  trial   court  could  only pronounce  judgment  on the issues arising or such issues as the parties framed  for the court’s determination.”

The record in this  case does not show  any statement  of defence  or amendment to the statement of defence or counter claim requesting for the cancellation of the title or a nullification of the sale.

The appellant  did not file  any counter claim or an application  to cancel the sale and declare it null and void. The judge was therefore correct in  limiting  her determination  to matters  set  out in  the pleadings  and canvassed for determination before her.

A court of law in adversarial system as ours cannot venture  into the arena of litigation on behalf of the parties. The presumption is that the parties understand their claims, their cause of action and those whose actions have aggrieved  them.     It is  not the business  of the  court to invite  parties  for contestation before it and thereafter declare the winner in a judgment.

It is noteworthy that, in Paragraph 8of his statement of defence the appellant intimated as follows:

[8]  The  Defendant  further   states that he shall  at the appropriate  time  seek  leave  to  enjoin  Industrial Commercial Development Corporation as a third party so that the court can conclusively determine the issues raised in the plaint and what is herein above pleaded.."(emphasis ours)

The appellant was well aware of the need to join ICDC in the suit but failed to do so.

It is a cardinal rule of evidence that where a party fails to call a critical witness, the court is free to draw an inference that the witness if called would have given adverse evidence against the party who failed to call the witness.

This  matter  being  so  much about  a  residential  property,  the  only inference that can be drawn from the appellant’s reluctance or failure to join ICDC or the auctioneer is that the evidence that would have been presented to the court as a result of such joinder would not have been favourable to the appellant.  From the moment the respondent visited  the suit land and the subsequent exchange of letters  between his advocates and the appellant’s advocates, if indeed the appellant was aggrieved, he ought to have been the

first party to institute an action against ICDC and all those involved in the sale of the suit property.

Finally, the appellant’s claim that he had settled the loan account with ICDC which reflected a credit  balance of Kshs. 977/- is, once again without evidence. The evidence  accepted  by the learned  Judge,  that the credit balance in the appellant’s account was the effect of credit into that account with the sale proceeds, appears to us to be more plausible.

There was, we hold, no duty on the part of the learned Judge to order the joining of any party to the proceedings.

For these reasons, this appeal lacks merit and is accordingly dismissed with costs.

Dated and deliveredat Nairobi this 10thday of October 2014.

W. KARANJA

……………………………… JUDGE OF APPEAL

W. OUKO

……………………………… JUDGE OF APPEAL

P.O.KIAGE

………………………… JUDGE OF APPEAL

I certify that this is a true copy of the original.

DEPUTY REGISTRAR

/mgkm