Contradicting Court of Appeal Decisions on Statutory Power of Sale: Teleposta v City Finance

Introduction

The protection available to an innocent purchaser who buys land through a statutory power of sale has become one of the most uncertain areas of property law in Kenya. This uncertainty stems from two recent decisions of the Court of Appeal which, upon close examination, reveal a direct and irreconcilable contradiction on this very question. It is a contradiction that has begun to trouble property lawyers and litigators across the country, forcing them to ask whether the court has spoken with two voices on the same issue.

The two decisions and their divided opinions

In Teleposta Pension Scheme Registered Trustees v Intercountries Exporters Limited & 5 others [2024] KECA 870 (KLR), the court held that an innocent purchaser under a statutory power of sale obtains no title if the chargor’s underlying title was void. In City Finance Limited & 2 others v Nyanja Holdings Limited & 3 others [2026] KECA 106 (KLR), the court held that whether the chargee committed procedural irregularities in the conduct of the sale is irrelevant to the purchaser’s protection under a statutory power of sale.

There are those who would argue that the two cases can be reconciled on their facts, that each turned on its own unique circumstances, and that no true conflict exists. They would point to the different factual matrices and suggest that the court was simply applying settled principles to different situations. But a rigorous analysis of the legal reasoning employed in each judgment reveals a direct and irreconcilable contradiction on the very heart of what it means to be a protected purchaser under a statutory power of sale.

Both are decisions of the same court, the Court of Appeal of Kenya. Both address the circumstances in which a person who has purchased property through a statutory power of sale may keep that property when the sale is later challenged. And on this fundamental question, they speak with two very different voices.

This article examines the two decisions in detail, exposing the contradiction between them and exploring its consequences. It begins with an analysis of the Teleposta decision, explaining how the land changed hands and why the court reached its conclusion. It then turns to the City Finance decision, setting out the facts and the reasoning that led to the opposite outcome. It places the two principles side by side and demonstrates why they cannot be reconciled. It explores the practical implications for purchasers, for banks, for borrowers and for the lawyers who advise them. And it offers guidance for dealing with the uncertainty while we await clarification from the Supreme Court. The protection available to an innocent purchaser under a statutory power of sale in Kenya is now an open question. This article seeks to map the terrain of that uncertainty and to help readers understand the risks they face.

Understanding the Statutory Power of Sale

The Statutory Foundation

To understand why this matter is of such critical importance, one must first appreciate the statutory framework that governs the exercise of the power of sale in Kenya. When a bank or other financial institution lends money on the security of land, it takes a charge over the property. This charge is created in accordance with the provisions of the Land Act, 2012, which at section 80 provides that a charge shall have effect as a security only and shall not operate as a transfer of any interests or rights in the land from the chargor to the chargee. The chargor retains the equity of redemption, which section 89 of the Act expressly prohibits a chargee from foreclosing.

If the borrower defaults in the repayment of the loan or the performance of any obligation, the chargee may exercise various remedies. Section 90 of the Land Act sets out the remedies available to a chargee, including the power to appoint a receiver, to take possession of the charged land, to lease the charged land and most significantly, to sell the charged land. This power of sale is the ultimate remedy available to a chargee, and it is designed to enable the chargee to recover the money advanced without the delay and expense of court proceedings.

The Statutory Conditions Precedent

The exercise of the statutory power of sale is not, however, an unfettered right. The chargee must comply with strict statutory requirements designed to protect the chargor. Section 90(1) of the Land Act requires that before a chargee can exercise any remedy, including the power of sale, the chargee must first serve on the chargor a notice in writing requiring the chargor to pay the money owing or to perform and observe the agreement as the case may be. The notice must adequately inform the chargor of the nature and extent of the default, the amount that must be paid to rectify the default, and the time within which the payment must be completed. Section 90(2) prescribes that the time for payment shall not be less than three months.

Thereafter, section 96(2) of the Land Act requires the chargee to serve on the chargor a further notice to sell in the prescribed form and provides that the chargee shall not proceed to complete any contract for the sale of the charged land until at least forty (40) days have elapsed from the date of the service of that notice to sell. This notice must also be served on a range of other interested persons, including the National Land Commission if the charged land is public land, any lessee or sublessee, any co-owner, any subsequent chargee, any guarantor and the spouse of the chargor who gave consent to the charge.

The duty owed to the chargor

Beyond these procedural requirements, the chargee owes a substantive duty to the chargor in the exercise of the power of sale. Section 97(1) of the Land Act expressly provides that a chargee who exercises the power to sell the charged land owes a duty of care to the chargor, to any guarantor, and to any subsequent chargee to obtain the best price reasonably obtainable at the time of sale. This duty is reinforced by section 97(2), which requires the chargee to ensure that a forced sale valuation is undertaken by a qualified valuer before exercising the right of sale.

Section 97(3) creates a rebuttable presumption that the chargee is in breach of this duty 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 are being sold in the open market.

Protection afforded to the purchaser

While these provisions exist to protect the chargor, the law also recognises that purchasers at statutory sales require special protection. They are not party to the lending transaction between the bank and the borrower. They have no knowledge of the amounts owed or the interest charged. They cannot know whether the bank served the required statutory notices or whether the borrower received proper demand letters. All they can do is rely on the register and the fact of sale.

For this reason, section 99 of the Land Act provides extensive protection to a person who purchases charged land from a chargee or receiver. Section 99(2) provides that such a purchaser is not answerable for the loss, misapplication or non-application of the purchase money paid for the charged land, is not obliged to see to the application of the purchase price, and is not obliged to inquire whether there has been a default by the chargor or whether any notice required to be given in connection with the exercise of the power of sale has been duly given or whether the sale is otherwise necessary, proper or regular.

Section 99(3) goes even further, providing that a purchaser is protected even if at any time before the completion of the sale, the person has actual notice that there has not been a default by the chargor, or that a notice has not been duly served or that the sale is in some way unnecessary, improper or irregular. The only exception to this protection is fraud, misrepresentation or other dishonest conduct on the part of the chargee of which the purchaser has actual or constructive notice.

The Consequences of the Sale

Upon registration of the transfer, the effect is equally sweeping. Section 98(4) of the Land Act provides that upon registration of the land sold and transferred by the chargee, the interest of the chargor passes to and vests in the purchaser free of all liability on account of the charge, or on account of any other charge or encumbrance to which the charge has priority, other than a lease or easement to which the chargee had consented in writing.

The proceeds of sale are then applied in accordance with section 101 of the Land Act, which prescribes a strict order of priority:

(a) First, in payment of any rates, rents, taxes or other sums owing on the charged land;

(b) Second, in discharge of any prior charge;

(c) Third, in payment of all costs and expenses properly incurred in the sale;

(d) Fourth, in discharge of the sum advanced under the charge; and

(e) Fifth, in payment of any subsequent charges in order of priority, with the residue paid to the person who immediately before the sale was entitled to discharge the charge.

The Traditional Position Under the Indian Transfer of Property Act, 1882 (Repealed)

This statutory framework, both under the current Land Act and its predecessor, the repealed Indian Transfer of Property Act, 1882 which applied in Kenya, has long been interpreted by the courts as providing near-absolute protection to a purchaser at a statutory sale. The courts have consistently held that a completed statutory sale is unimpeachable except in the narrowest of circumstances. The purchaser’s title stands even if the bank acted improperly, even if the statutory notices were defective, even if the amount owed was disputed. The only exception is fraud, and that fraud must be specifically pleaded and strictly proved against the purchaser themselves.

This traditional protection provided certainty. It allowed purchasers to buy with confidence. It allowed banks to sell with assurance. It allowed the property market to function smoothly. It is this carefully constructed statutory edifice, designed to balance the interests of chargors, chargees and purchasers, that the two conflicting decisions of the Court of Appeal have now thrown into uncertainty.

The commercial importance of certainty

If purchasers cannot rely on the titles they acquire at statutory sales, then the entire mechanism breaks down. Banks will struggle to find buyers, borrowers will face greater difficulty obtaining credit and the economy will suffer.

The Teleposta Decision

The Teleposta case arose from a complicated history of land allocations in Nairobi. The suit property had originally been vested in a public corporation, the Kenya Post and Telecommunication Corporation, which was the predecessor of the appellant, Teleposta Pension Scheme. Through valid legal notices published in the Kenya Gazette, first in 1988 and again in 2001, the property had been vested in Teleposta for the purpose of meeting its pension obligations to former employees.

Despite this, the Commissioner of Lands in 1996 allocated the same property to a private company called Park Avenue Investments Limited. Park Avenue obtained a title and then charged the property to Trust Bank Limited as security for a loan. When Park Avenue defaulted, Trust Bank exercised its statutory power of sale and sold the property to Intercountries Exporters Limited. Intercountries was the purchaser at that statutory sale and it paid valuable consideration for the property.

Teleposta sued, arguing that the initial allocation to Park Avenue was illegal because the land was not available for allocation. It had already been vested in a public body. The Court of Appeal agreed. It found that Park Avenue had no valid title because the Commissioner of Lands had no power to allocate land that was already lawfully vested in another entity. And here is where the critical legal question arose. If Park Avenue had no valid title, then it could not grant a valid charge to Trust Bank. And if the charge was invalid, then Trust Bank had no statutory power of sale to exercise. And if Trust Bank had no power of sale, then the sale to Intercountries was a nullity.

Intercountries, despite being an innocent purchaser who had paid money for the property, obtained nothing. The court put it in stark terms at paragraph 112. It said that even assuming Intercountries was an innocent purchaser for value without notice, because Park Investments did not have a proper title to the suit property, the security to the bank did not confer a proper charge upon which a statutory power of sale could arise that could pass any valid title to Intercountries Limited. The sale was, in the court’s memorable phrase, no more than hot air.

The principle extracted from Teleposta

The principle that emerges from Teleposta is that a purchaser under a statutory power of sale cannot obtain a better title than the charger had. If the charger’s title is void, then the charge is void and the statutory sale is void. The purchaser’s good faith is irrelevant. The purchaser’s payment of value is irrelevant. The purchaser’s reliance on the register is irrelevant. What matters is the validity of the underlying title. If that title was illegally obtained, then everything that follows is a nullity and the property must be restored to its true owner.

The City Finance Decision

Now consider the City Finance decision delivered eighteen (18) months later. The facts were different, but the legal structure was identical. There was a lending transaction between City Finance Bank and Nyanja Holdings Limited, secured by a charge over a property in Karen, Nairobi. Disputes arose about the amount owed and the interest charged. The bank exercised its statutory power of sale and sold the property by private treaty to Redmars Holdings Limited. The borrowers sued, challenging the sale on multiple grounds including the validity of the statutory notices and the propriety of the bank’s accounting. The High Court found in favour of the borrowers, cancelled the sale, and ordered the property restored to the original owner.

The Court of Appeal reversed that decision in emphatic terms. And in doing so, it articulated a very different principle from the one set out in Teleposta. At paragraph 28, the court stated that once a valid sale has taken place, the equity of redemption is extinguished and the court’s remedial jurisdiction is limited. At paragraph 29, it quoted with approval the decision in Mbuhtia v Jimba Credit Finance Corporation Limited for the proposition that once a sale of charged property has taken place in exercise of a statutory power of sale, the purchaser acquires an absolute and indefeasible title and the mortgagor's remedy, if any, lies in damages against the mortgagee.

The principle extracted from City Finance

At paragraph 32, the court held that absent fraud or collusion to which the purchaser is a party, a completed sale in exercise of the statutory power of sale is unimpeachable and the court cannot grant orders cancelling the sale or directing retransfer of the property. And at paragraph 39, the court stated that even failure to serve a valid statutory notice, which is a fundamental requirement for the exercise of the power of sale, does not invalidate a sale that has already taken place. The remedy is damages, not cancellation.

The principle from City Finance is equally clear that a purchaser under a statutory power of sale is protected unless the purchaser themselves was fraudulent. The purchaser need not investigate the validity of the charge or the propriety of the bank’s conduct. The purchaser can rely on the register and the fact of sale. Even if the bank acted improperly, even if the statutory notices were defective, even if the amount owed was disputed, the purchaser’s title stands. The only exception is fraud by the purchaser, and that fraud must be specifically pleaded and strictly proved.

The Contradiction Laid Bare

Now place these two principles side by side and the contradiction becomes unmistakable. In Teleposta, the court looked behind the statutory sale at the validity of the charger’'s title and found it wanting. Because the chargor’s title was void, the sale was void and the purchaser obtained nothing. In City Finance, the court refused to look behind the statutory sale. It confined its inquiry to the conduct of the purchaser. Because no fraud was proved against the purchaser, the sale was upheld and the purchaser kept the property. The two courts asked fundamentally different questions. The Teleposta court asked whether the charger had a valid title. The City Finance court asked whether the purchaser was fraudulent. Those are not the same question and they lead to opposite outcomes.

A side-by-side comparison of the two principles

Consider how this plays out in practice. Imagine a purchaser who buys property at a statutory sale conducted by a bank. The purchaser does everything right. They conduct a search at the lands registry, they see that the charger is registered as proprietor, they see that the bank holds a registered charge, they pay a fair price, and they complete the transaction in good faith. Five (5) years later, it emerges that the charger’s title was itself illegally obtained. Perhaps the land was public land that should never have been allocated to the charger in the first place. Under the Teleposta principle, that purchaser loses the property. The original owner, whether the government or some other entity with a superior claim, can come forward and have the purchaser’s title cancelled. Under the City Finance principle, that purchaser keeps the property. The only remedy for the original owner is to sue the charger or the bank for damages, assuming they can be found and have money to pay.

Both outcomes cannot be correct. Both principles cannot represent the law of Kenya. And yet they are both decisions of the same court, the Court of Appeal, delivered within eighteen (18) months of each other. The later court in City Finance did not mention the earlier decision in Teleposta. It did not attempt to distinguish it. It did not explain why it was departing from it. It simply applied a different rule as though the earlier decision did not exist.

One might attempt to reconcile the two cases on the basis of their facts. In Teleposta, the underlying title was void because the land was public land that had never been available for allocation. In City Finance, the underlying title was not void, it was merely disputed on grounds of accounting and interest. But this distinction does not hold up to scrutiny.

The same legal problem, opposite legal answers

In City Finance, the borrowers argued that the bank had no power of sale because the statutory notices were defective. If that argument had succeeded, then the bank would have had no more power to sell than Trust Bank had in Teleposta. The court in City Finance held that even if the notices were defective, the sale still stood. That is a direct rejection of the reasoning in Teleposta. In Teleposta, the court held that because the charge was void, the sale was void. In City Finance, the court held that even if the charge was improperly enforced, the sale still stands. Those are opposite conclusions on the same legal question.

The contradiction matters for reasons that go far beyond academic interest. It matters for every bank that exercises a statutory power of sale and needs to assure purchasers that they will obtain marketable title. It matters for every purchaser who invests their money in property bought at a statutory sale and needs to know that their title is secure. It matters for every borrower whose property is sold and who needs to understand what remedies are available. It matters for every lawyer who must advise clients on the risks involved in property transactions. When the Court of Appeal speaks with two voices, the rest of us are left to guess which voice will prevail.

There is a deeper concern as well. The doctrine of precedent, or stare decisis, is fundamental to the rule of law. It ensures that like cases are decided alike. It provides predictability and certainty. It prevents courts from deciding cases based on the personal views of individual judges. When a later court departs from an earlier decision without explanation, it undermines all of these values. It creates the impression that the law is whatever a particular bench says it is on a particular day. And that impression, once formed, is very difficult to dispel.****

The cost of continued uncertainty

It may be that the Court of Appeal will have an opportunity to resolve this contradiction in a future case. Perhaps a full bench will be convened to consider the matter and to declare definitively which principle represents the law. Until then, however, we are left with uncertainty. And in the world of property transactions, uncertainty is the enemy of commerce.

For those of us who must advise clients today, the only prudent course is to acknowledge the contradiction openly and to plan for both possibilities. A purchaser buying at a statutory sale should conduct enhanced due diligence extending beyond the immediate charger’s title. They should investigate the history of the property going back as far as possible. They should seek express contractual indemnities from the selling bank. They should consider title insurance where available. And they should be prepared for the possibility that even after doing all of these things, their title may still be challenged if a defect in the underlying title is later discovered.

Conversely, a client who has lost property through a statutory sale should not assume that all is lost. If there is any argument that the original charger’s title was itself defective, the Teleposta decision provides a powerful weapon. The client may be able to have the sale set aside and the property restored, even if the purchaser was entirely innocent.

These are not comfortable positions for a lawyer to occupy. We are accustomed to giving clear advice, to stating what the law is and what it means for our clients. But when the Court of Appeal contradicts itself, clear advice becomes impossible. All we can do is explain the contradiction, lay out the risks and help our clients make informed decisions in the face of uncertainty.

The question with which we began was whether the Court of Appeal has contradicted itself. The answer, on any fair reading of the two judgments, is yes. The contradiction is direct, it is irreconcilable and it has profound implications for property law in Kenya. Until it is resolved, the protection afforded to a purchaser under a statutory power of sale will remain an open question, a source of litigation, and a cause of anxiety for everyone who buys, sells, or lends on the security of land. That is not how a mature legal system should operate. And it is a problem that demands an urgent solution.

Authored by Benson Odiwuor Otieno; Advocate of the High Court of Kenya

This article is a publication of the Litigation Practice Notes series, featured in The BOLD Newsletter. For questions, clarifications, or suggestions on this or related subjects, contact the author directly at insights@bensonodiwuor.com/ info@bensonodiwuor.com

The views and opinions expressed in this article are solely those of the author in his personal capacity and do not represent the views, positions or opinions of any organisation with which the author is associated, including by reason of employment, professional engagement or affiliation.