A bona fide purchaser is not shielded where the root of the title is questionable

This is an appeal at the Court of Appeal from the judgment in Nairobi ELC No. 503 of 2017 of 14 June 2019 in a dispute over the ownership of L.R. No. Kiambu Municipality/Block/III/112 (the Suit Property).

Introduction and Background

Patricia Mary Clark (the Appellant) pleaded that she had lawfully purchased the suit property in 1994 from Mumwe Investments Limited and executed a sale agreement to that effect. She entrusted the Title Deed to her advocate for safe keeping as she was out of the country. In 2010, she was interested in developing the suit property and sent her mother to inspect the land and advise on an appropriate development project. It was then discovered that someone had laid groundwork on the suit property. A search indicated that the Appellant had transferred the suit property to Godfrey Ngatia Njoroge (the 1st Respondent) who then transferred it to Samuel Kuntai Tunai (the 2nd Respondent).

The Appellant asserted that she never effected any sale, transfer or otherwise disposed of the suit property and therefore termed the transactions as false, illegal and fraudulent. She reported the matter after which the Lands Registrar at Kiambu entered a restriction on the title to the suit property on 6 April 2010 to prevent further dealings on the suit property pending investigations into the matter. 

Appellant’s case at the Environment and Land Court 

The Appellant pleaded that the Respondents had jointly and severally perpetrated fraud and misrepresentation in order to procure registration of the suit property in their names. She also pleaded negligence and misrepresentation on the part of the Respondents including failure to ascertain the true ownership of the suit property before effecting the alleged transfer, failure to require the production of the certificate of lease from the alleged transferor, failure by the Lands Registry to exercise due diligence in processing the transfer, failure to summon the relevant parties to explain the circumstances surrounding the title and representing to the Appellant that investigations into the matter were ongoing since 2010 without any concrete action being taken. She then sought judgment against the Respondent for orders compelling the 1st and 2nd Respondents to surrender for cancellation any title or registration certificate relating to the suit property and an order for the Lands Registry to effect rectification of the green card to reflect her as the registered owner.

The 2nd Respondent opposed the suit and contended that he was the lawful proprietor of the suit property, which he had acquired lawfully and in good faith for value from the 1st Respondent. Further, he asserted that prior to making the purchase, his advocates conducted due diligence by carrying out an official search at the Kiambu Lands Registry in November 2009 – which confirmed the 1st Respondent as the registered owner of the suit property. He further pleaded that the law under the Land Registration Act protected his claim to the title as a bona fide purchaser for value.

The court declined to grant the orders sought by the Appellant and holding that she had failed to prove her case against the Respondents. The court in its holding determined that the Appellant had failed to prove the allegation of fraud to the required standard and thus failed in that limb. Further, that the 2nd Respondent having relied on the land search conducted at the Kiambu Lands Registry, was accorded protection as a bona fide purchaser for value without notice and therefore acquired a valid title in law.

Appeal to the Court of Appeal

Aggrieved by the Environment and Land Court decision, the Appellant filed the appeal contending that the learned judge erred both in law and fact by; failing to find that the Appellant remained the lawful proprietor of the suit property despite evidence that she retained the original title and remained in possession of the suit property; failing to appreciate the fact that there was no evidence from the Lands Registry that there was a transfer instrument between her and the 1st Respondent and that the issuance of the title to the 1st Respondent was therefore irregular and fraudulent. Additionally, that the learned judge had failed to consider the possibility of the 1st Respondent being a fictitious vehicle to facilitate the fraudulent transfer of the suit property to the 2nd Respondent. 

The Respondents on the other hand contended that the Appellant bore the burden of proving fraud which she had not discharged. Further, she stated that the Appellant’s claim that there was no instrument of transfer on record did not necessarily establish fraud and that the files could easily have been misplaced or misfiled while in the custody of the registry. On the alleged fraud, the 2nd Respondent added that the alleged reporting of the matter to the Directorate of Criminal Investigations more than 15 years prior was unfounded as there were no criminal charges lodged against any of the Respondents. Therefore, they urged the court to uphold the findings of the trial court and dismiss the appeal.

Determination of the Court

Whether the alleged transfer of the suit property from the appellant to the 1st Respondent was proved and, if not, whether the absence of a transfer instrument and the surrounding circumstances demonstrated that the 1st Respondent’s title was obtained fraudulently, illegally, or unprocedurally, thereby vitiating the root of title

The Appellant’s title to the suit property dating back to 1994 was not disputed which was the genesis of her claim. The Appellant maintained that she had not transferred her land to the 1st Respondent in 1995. Significantly, the Land Registrar produced registry records and confirmed that although the green card reflected a transfer from the Appellant to the 1st Respondent, the parcel file did not contain any transfer instrument evidencing such transfer. 

The Appellant also raised the allegation of fraud which the court noted, must be specifically pleaded and proved. The Court noted that her claim was not a mere suspicion but was founded on direct evidence that she had never executed a transfer in favour of the 1st Respondent. This was reinforced by the fact that there was no transfer instrument at the Lands Registry supporting the alleged transfer. In the Court’s view, the absence of the primary transfer instrument was not a mere technical omission but one that went to the root of the title. It took the view that once the Appellant challenged the impugned transfer and the Land Registrar confirmed that no transfer instrument existed in the parcel file it was on the Respondents to demonstrate the legality of the transfer, which they failed to. The failure to produce evidence before court to support the alleged transfer left the purported transfer wholly unsupported.

Consequently, the court concluded that the 1st Respondent’s title was not lawfully acquired.

If the 1st Respondent’s title was defective, whether the 2nd Respondent could nonetheless sustain his title as a bona fide purchaser for value without notice

The 2nd Respondent maintained that he had conducted an official search which showed that the 1st Respondent was the registered proprietor of the suit property, after which he entered into a sale agreement, paid the purchase price and was issued with a certificate of lease upon registration. The steps which the court noted, are the ordinary indicators relied on by a purchaser claiming protection as an innocent buyer. Be that as it may, the doctrine of bona fide purchaser cannot be considered in isolation from the legality of the vendor’s title. Furthermore, the Land Act provides that a certificate of title may be impeached where it is shown that it was obtained through fraud or misrepresentation, or where it was acquired illegally, unprocedurally or through a corrupt scheme. That is to say, the absence of personal fraud on the part of the registered proprietor relying on the principle of a bona fide purchaser, does not shield a title that is derived from an unlawful or defective root of the title.

In the court’s view, once the transfer from the Appellant to the 1st Respondent was challenged and found to be unsupported by any transfer instrument in the registry file, the 2nd Respondent could not rely solely on the register without further inquiry. The unfounded claim of misplacement of the transfer documents at the Registry was, in the courts view, unsustainable as it was mere speculations incapable of raising the presumption. Furthermore, the Court queried the inconsistencies relating to the documentary trail showing remittance of the purchase price to the 1st Respondent which did not in itself prove fraud but illustrated a lack of clarity surrounding the whole transaction.

In light of the circumstances, the Court could not accept the argument that reliance on the Register alone was sufficient to establish that the 2nd Respondent was a bona fide purchaser for value – considering the very root of the 1st Respondent’s title remained unexplained.

Why is this decision important?

This decision lays emphasis on the fact that in land transactions, the root of the title is important as it is the foundation of a lawfully acquired title. There is the recognition of a purchaser in good faith who the law protects but who cannot stand to benefit where the very title of the vendor is not valid. Ultimately, it points to the importance of the doctrine of buyer beware and the rebuttable presumption of a clean title deed which negates the protection under the doctrine of bona fide purchaser in an illegal transaction.