THE REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA AT NAIROBI

COMMERCIAL AND TAX DIVISION

CIVIL SUIT NO 389 OF 2011 PREVIOUSLY 1661 OF 2002

JOSEPH NJOGU NJUGUNA ………………………………… 1ST PLAINTIFF

JANE NYAMBURA NJOGU ………………………………… 2ND PLAINTIFF

- VERSUS -

PAULINA RAGUS ………………………………………….. 1ST DEFENDANT

TETRA PAK LIMITED ……………………………………. 2ND DEFENDANT

CONSOLIDATED WITH HCCC NO 422 OF 2007

JOSEPH NJOGU NJUGUNA ………………………………… 1ST PLAINTIFF

JANE NYAMBURA NJOGU …………………………………. 2ND PLAINTIFF

- VERSUS -

TETRA PAK LIMITED ………………………………………… DEFENDANT

JUDGMENT

1. This judgment is in respect of two suits filed by the plaintiffs against the

defendants. The first suit HCC 389 OF 2011 which was previously filed as

HCCC 1661 OF 2002 and the second suit HCC 422 OF 2007. The two suits

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 were consolidated. The suit proceeded against the Tetra Park Ltd

(hereinafter “the defendant”) only.

2. In HCCC 422 OF 2007 the plaintiffs instituted the suit against the defendant

vide a plaint dated 9/8/2007. They sought judgment against the defendant for

a declaration that the sale of property known as (L.R NO 1/149 “the suit

property”) was fraudulent illegal null and void. That the defendant be

ordered to pay the plaintiff the full value of the suit property together with

interest.

3. In HCCC 389 OF 2021, the plaint dated 5/11/2002 sought a declaration that

the sale of the suit property was fraudulent and an injunction to restrain the

defendants from evicting the plaintiffs from the suit property.

4. The plaintiffs’ case was that, being husband and wife, they co-owned the suit

property which was their matrimonial home. That the 2nd plaintiff donated her

power of attorney to the 1st plaintiff to sell, let or hire the suit property. They

pleaded that the power of attorney did not donate the power to charge or

mortgage the property. That by a deed of guarantee dated 29/6/2000, acting

on the power of attorney, the 1st plaintiff guaranteed a company known as

Aberdare Creameries Ltd a sum of Kshs. 15,000,000/- paid by Barclays Bank

of Kenya Ltd.

5. A charge was executed by the 1st plaintiff on 4/6/2000 pursuant to the deed of

guarantee. The plaintiffs averred that the charge was unlawful since the 1st

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 plaintiff did not have the authority to charge the property and the defendant

ought to have investigated the circumstances behind the issuance of the

charge. That from the contents of the power of attorney, the defendant knew

that it was not authorized to charge the suit property.

6. It was contended that the principal debtor, Aberdares Creameries Limited,

drew cheques for the amount outstanding which were received by the

defendant. That the plaintiffs were discharged of their liabilities and the

defendant was obliged to discharge the suit. That the sale of the property to a

7. The defendant filed a statement of defence in HCCC 389 OF 2011 dated

22/11/2002 and a statement of defence dated 20/9/2007 in HCCC 422 OF

2007. It contended that the power of attorney gave the 1st plaintiff the authority

to deal with the suit property in any manner including charging the property

and executing the deed of guarantee.

8. That there was sufficient consideration since the charge was created after the

deed of guarantee was executed. That there was no variation of the guarantee

between the 1st plaintiff and the defendant as the attempt to pay the debt was

not successful. That the property was sold upon failure of the 1st plaintiff to

pay the debt.

9. At the trial, the 2nd plaintiff was the first to testy. She adopted her witness

statement dated 30/3/2015 and produced the bundle of documents dated

14/3/2002 and 12/9/2019 as PEhx.1 and 2, respectively. She stated how the

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 1st plaintiff had approached her when she was outside the country and

requested her to sign a power of attorney in order for him to rent out the

property. She signed the power of attorney on 22/2/2000. That the power of

attorney was issued only for rental purposes so that the husband could

downsize and move to a smaller unit. That no one sought her consent for

offering the property as security. She did not sign the charge or deed of

guarantee.

10.She testified that the sale agreement stated that the property was sold on

26/4/2002 whereas the auctioneers notice was dated 29/4/2002. That the first

formal communication for the sale was on 31/10/2002. That at the time, the

property was valued at between Kshs.31 to 34 million. That however, it was

sold at Kshs 14.5 million. That the valuation report done on 25/7/20219

showed that the current value of the suit property was Kshs. 947 million. That

the defendant’s advocate Mr. Katiku received Kshs. 3million from another

purchaser but never refunded the same.

11.In cross examination by Mr. Katiku for the defendant, she stated that the

power of attorney was specific to leasing the property. That the property was

sold at an undervalue. She did not get any value for the property.

12.As at the time of trial, the 1st plaintiff was so sick to testify. He had donated a

power of attorney to GRACE MUENI NJOGU (Pw2) to testify on his

behalf. She told the Court that the 1st plaintiff gave her a power of attorney

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 dated 11/1/2022 to represent him in matters concerning the suit and hearing.

The 1st plaintiff had recorded statements dated 27/7/2017 and 11/1/2023

which she relied on as evidence. She produced the bundle of documents dated

11/1/2023.

13.She testified that the 2nd plaintiff gave the 1st plaintiff a power of attorney to

sell, lease or rent the property. However, the 1st plaintiff guaranteed Aberdare

Creameries a sum of Kshs. 15 million. That the property was sold as per sale

agreement on 26/4/2002 despite the advert stating that the auction would be

on 29/4/2002. That the plaintiffs found a buyer and paid 10 percent of the

purchase price but they were not aware that the property had been sold. The

purchaser had put a caveat dated 21/6/2000 but the conveyance was registered

on 31/10/2002 notwithstanding the restriction.

14.It was her testimony that the consent of the 2nd plaintiff was not sought for the

sale and the plaintiffs were not notified of the sale. she testified that the

property was sold at an undervalue.

15.DW1 DANIEL NJENGA adopted his witness statement dated 8/8/2018 and

produced the of documents bundle dated 28/3/2022 as DExh.1. He testified

that the debt was not paid by the borrower and the property was sold on

26/9/2002 by private treaty. The loan had not been released to the borrower

Aberdare Creameries when the plaintiff was guarantying the defendant. With

respect to the cheques issued to the defendant by the borrower, he testified

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 that the defendant could not accept the postdated cheques. Further, it was

contended that the deed of guarantee and the mortgage were independent

documents.

16.DW2 NJEE MUTURI adopted his witness statement dated 24/3/2022 as

evidence in chief. He testified that the conveyance was dated 18/10/2002 and

was registered on 30/10/2002. That the market value of the suit property was

Kshs. 31 million. That although the forced sale value was Kshs 24.8 million,

nevertheless the suit property was sold for Kshs.14.5 million.

17.The parties filed their respective submissions which I have carefully

considered. For the plaintiffs, it was submitted that as co-owners, one party

could not unilaterally deal with the suit property without the consent of the

other.

18.That the power of attorney was specific to sell, let and hire or lease out the

property only for the benefit of the 2nd plaintiff. That the defendant could not

lawfully charge the suit property after the due consideration had passed

between the defendant and the principal debtor. That the 1st plaintiff was

guaranteeing a past debt and no money was to be advanced as stipulated in

the mortgage document. That the defendant could not create a legal mortgage

as it was not a bank and the defendant was guilty of fraud and

misrepresentation.

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19.That the 1st plaintiff, without legal representation, was tricked into signing the

deed of guarantee and mortgage instrument. In this regard the doctrine of non-

est factum came into effect. That there was no loan that was advanced to

Arberdare creameries as the 1st plaintiff was only guarantying a past debt.

20.It was contended that the property was sold at an undervalue as the valuation

report of Lloyd Masika done in August 2002 disclosed that the open value of

the property was Kshs 31,000,000/- with a forced value of Kshs.24,800,000/.

That Kshs.14.5 million was too low. It was submitted that the plaintiffs were

denied their equity of redemption since the property was sold even when they

were negotiating with potential buyers to buy the property.

21.The defendant submitted that the suit was res-judicata as the issue of the sale

of the suit property had been settled in finality by a consent entered upon on

29/4/2002. That the suit property was sold as a result of the plaintiffs’ failure

to abide by the terms of the consent order. Counsel submitted that the issue of

res-judicata had been dealt with by Khaminwa J but she had not been

informed that the parties had been the same and that the facts prevailing on

the said ruling had overtime evolved. That the power of attorney’s validity

had not been challenged as it was signed and registered.

22.Counsel submitted that the guarantee and execution of the mortgage was

within the contemplation of the power of attorney. That the power of attorney

was broad to empower the 1st plaintiff to execute the guarantee and to

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 mortgage the property. That the plaintiffs failed to prove the allegations of

fraud and misrepresentation.

23.That under the ITPA, the mortgage could be secured for a future or previous

debt and the validity of a mortgage could not be challenged since it was

executed under seal. With respect to valuation, counsel submitted that the

valuation reports had no probative value since the makers of the reports were

not called in court to give evidence. That the plaintiffs did not specifically

plead that the property was sold at an undervalue.

24.I have considered the pleadings, the evidence and the submissions on record.

Having done so 4 issues arise namely, whether the suit was res-judicata,

whether the power of attorney donated to the 1st plaintiff by the 2nd plaintiff

covered the guarantee to Barclays Bank for the facility of Kshs.15million and

creation of the mortgage instrument, whether the sale of suit property was

lawful, and whether the property was sold at an undervalue.

25.Whether the suit was res-judicata. The defendant contended that the suit was

res-judicata since on 29/4/2002 the parties had recorded a consent with

respect to the sale of the property. The plaintiffs on their part submitted that

Khaminwa J had already pronounced herself on the issue.

26.It is trite that a matter is said to be res-judicata when it is directly and

substantially in issue and the issues in the present suit are substantially in issue

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 in a matter that has been determined. This is encapsulated in section 7 of

the Civil Procedure Act, 2010.

27.In Independent Electoral & Boundaries Commission –vs- Maina Kiai &

5 Others (2017) eKLR, the Court of Appeal held that: -

“… the bar of res judicata to be effectively raised and upheld

on account of a former suit, the following elements must be

satisfied, as they are rendered not in disjunctive but conjunctive

terms;

a) The suit or issue was directly and substantially in issue

in the former suit.

b) That former suit was between the same parties or parties

under whom they or any of them claim.

c) Those parties were litigating under the same title.

d) The issue was heard and finally determined in the former

suit.

e) The court that formerly heard and determined the issue

was competent to try the subsequent suit or the suit in

which the issue is raised.

…”

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28.I have perused the record. It shows that the defendant had raised that issue

vide a preliminary objection and the same was not sustained. The Court

therefore cannot address that issue having been determined by a Court of

competent jurisdiction. The said orders had not been set aside and to delve

into the same would be akin to sitting on appeal on the orders of Khaminwa

J.

29.The second issue is whether the power of attorney donated by the 2nd to the 1st

plaintiff covered the guarantee to Barclays Bank for the facility of Kshs.

15million and the creation of the mortgage instrument. It is not in dispute that

the 2nd plaintiff donated a Power of Attorney dated 22/2/2000 to the 1st

plaintiff. In dispute is whether the power of attorney extended to the guarantee

and mortgage issued by the 1st plaintiff.

30.The 2nd plaintiffs’ position was that the power of attorney was specific and

only limited to authorizing the 1st plaintiff to sell, let, hire or lease out the

property and not to guarantee any third party or offer the property as security.

On the other hand, the defendant contended that the power of attorney

encompassed the right and power to execute the guarantee document as well

as execution of the mortgage instrument.

31.The power of attorney in part read as follows: -

“That I Jane Nyambura Njogu … nominate and appoint

Joseph Njogu Njuguna … to be my true and lawful attorney

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 and agent, with full power and authority for me and in my

name in regard of property L.R 1/149; to sell, let and hire or

lease out property No 1/149 which is described as all that piece

of land in the City of Nairobi ...

… further, for me and on my behalf, to borrow or give money

on mortgage of immovable property and to appear before the

registrar of deeds, Register of claims and make a pass, give or

receive all such mortgage bonds, deeds of hypothecation or

other securities as may be requisite or necessary under

obligation of my person and property L.R. No 1/149.

…. And for that purpose to execute the usual and customary

documents; and generally for me and in my name to manage

and transact my affairs in regard to L.R 1/149 and execute such

deeds or instruments as may be necessary or most to my

advantage and to use all lawful ways and means thereto as fully

and effectively to all intents and purposes as might or could do

if personally present and acting therein; hereby granting to my

said attorney and agent full power and authority to substitute

one or more attorneys…..

32.A close reading of the power of attorney demonstrates that the 2nd plaintiff

had nominated several powers to the 1st plaintiff with respect to the suit

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 property. First, it is evident the 1st plaintiff was allowed to sell, let and hire or

lease out the suit property. Further, she gave him the right to borrow and give

money on mortgage of immovable property.

33.Although the power of attorney had a general clause where the 1 st plaintiff

was empowered to execute the usual and customary documents and transact

all the 2nd plaintiff’s affairs including execution of deeds or instruments, those

were restricted to her advantage. The clause read, “and execute such deeds

or instruments as may be necessary or most to my advantage”.

34.The question that arises is whether the guarantee was necessary or most

advantage to the 2nd plaintiff. It was not. No reasonable lender could rely on

that power of attorney to lend out its money. As it turned out however, there

was no money that was lent, money had long been lent and the 1 st plaintiff

was only guaranteeing their repayment.

35.I hold that the power of attorney did not extend to the guarantee and the

mortgage. In view of the foregoing the guarantee and execution of the

mortgage was not covered by the power of attorney.

36.In any event, both the guarantee and the mortgage were never effective. Both

were executed;

“IN CONSIDERATION of your having agreed at our request

to guarantee to Barclays Bank of Kenya Limited … to enable

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 the Bank to advance a financial facility of a principal sum of

… to ABERDARE CREAMERIES LIMITED …”.

37.It is clear that both the Guarantee and the Mortgage were given for no

consideration at all. There was no evidence that after the execution thereof by

the 1st plaintiff, the defendant gave any assurances to Barclays Bank to

advance any monies to Aberdare Creameries. It turned out that the advances

had long been made and the documents only came in ta act as a trap for the

plaintiff’s property. Surely, that was a case of past consideration. No contract

was effective.

38.The next issue is whether the sale of the sale of the suit property was lawful.

The security documents were challenged on how they were executed without

legal advise. I have looked at the said documents and in particular the

Mortgage document. The defendant sought t o create a statutory power of sale

which the law did not recognize. The defendant was not a bank. It could not

purport to advance any money, take security therefor and exercise the pwere

of an bank yet it was not a bank.

39.In George Lalla Oduor vs. Cannon Assurance (K) Ltd [2019] Eklr, the

Court of Appeal held that the Insurance Act did not authorize an insurance

company to issue mortgages, and that a licence under the Banking Act to carry

out mortgage business was mandatory. Therefore a mortgage created by the

insurance company was found to be unenforceable. Likewise, there was no

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 evidence to show that the defendant in this case was authorized to create

mortgages.

40.In this regard, to the extent that the defendant sought sell and actually sold the

plaintiffs property in exercise of a non-existent statutory power of sale, the

sale was unlawful.

41.Finally, the last issue is whether the property was sold at an undervalue. The

defendant admitted that the property was sold via private treaty for Kshs

14,500,000. The plaintiffs challenged this amount stating that it was a gross

undervalue of the property since at the time it was valued at more than Kshs.

30 million.

42.The plaintiffs produced two valuation reports from Tysons Limited which

gave the Open Market Value at Kshs 32,000,000/- and Forced sale value of

Kshs 25,000,000/-. The other valuation report by Lloyd Masika Limited gave

an open Market value of Kshs 31,000,000/- and a forced sale value of

Kshs.24,800,000/-.

43.The Court notes that the defendant did not challenge these two valuation

reports which demonstrate that the property was sold at half the price of its

value. There was no valuation to counter the said valuations. In the premises,

the evidence points out to the fact that the property was sold at greatly an

under value.

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 44.In view of the foregoing, the court finds that the defendant was not justified

to sell the property known as L.R NO 1/149. There was a valuation that was

produced but was for 2022. The proper valuation will be as at the time the

property was sold, when the loss attached.

45.Accordingly, I find that the plaintiffs have proved their case to the required

standard and I enter judgment in their favour against the defendant as follows:

a) The sale of the suit property was unlawful and was at an under value.

b) The defendant do pay to the plaintiffs a sum of Kshs.32,000,000/- plus

interest of 12% pa from the date of filing suit until payment in full.

c) The plaintiffs are awarded the costs of the suit plus interest thereon.

It is so decreed.

DATED and DELIVERED at Nairobi this 30th day of April, 2024.

A. MABEYA, FCI Arb

JUDGE

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