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Reprieve for Erdemann as court blocks Sh2 billion property transfer
The verdict marks a crucial turning point in a commercial dispute that has stretched for many years and spawned at least eight separate injunction applications.
Real estate developer, Erdemann Property Limited, has won a reprieve after the Court of Appeal halted any further dealings on its Sh2 billion in Mavoko, Machakos County, which was auctioned last year to Credit Bank Limited over loan default.
The court issued far-reaching orders stopping Credit Bank from selling, transferring, or otherwise disposing of the disputed property pending the determination of Erdemann’s appeal.
The verdict marks a crucial turning point in a commercial dispute that has stretched for years and spawned at least eight separate injunction applications.
At the centre of the contest is a property registered as LR 12876/13 (IR 36277) in Mavoko Municipality, which was used as security for a loan but auctioned in June 2024 for Sh1.125 billion after the developer defaulted on a Sh817.8 million loan.
Erdemann, through its managing director Zeyun Yang, alleges that the bank acted fraudulently by selling the property to itself at an undervalued price.
The company insists it has an arguable appeal and faults the High Court’s earlier decision dismissing its July 2024 application because the High Court was functus officio (had performed its duty earlier).
In asking the appellate judges to intervene, the developer warned that the property could be passed on to third parties, thereby complicating an already entangled dispute.
Erdemann claimed that Credit Bank lacked the financial strength to compensate it if the appeal ultimately succeeds.
The firm put the open market value of the property at Sh2 billion and pointed to the bank’s net profit of Sh32.4 million in 2023 as evidence that the lender would be unable to cover any potential loss.
“Unless the orders sought are granted, the intended appeal will be rendered nugatory,” the developer submitted.
Credit Bank, however, maintained in its replying affidavit that the sale was lawful, commercially justified, and conducted in compliance with the Land Act and Auctioneers’ Rules.
It argued that Erdemann’s default was undisputed and that statutory notices had been properly served.
The lender insisted that the developer’s appropriate remedy lay in damages, citing Section 99(4) of the Land Act, which states that “a person prejudiced by an unauthorized, improper, or irregular exercise of the power of sale shall have a remedy in damages against the person exercising that power.”
The bank further argued that Section 100(3) of the Land Act permits a chargee to bid at a public auction and purchase the property so long as the highest bid or reserve price requirements are met.
However, the judges noted gaps in the bank’s explanation of how the auction was conducted, particularly whether other bidders participated and what the highest bid was.
“It is not clear how the public auction was conducted on June 5, 2024. The Court was not told whether there were other bidders and what the highest bid price was,” the bench stated, adding that strict compliance with Section 100(3) must be demonstrated where a chargee buys charged land.
The court also highlighted the developer’s evidence that Credit Bank had repeatedly struggled to attract bidders, partly because Erdemann ran “full-page adverts of a caveat emptor in local newspapers” intended to discourage prospective buyers.
The judges observed that this may have contributed to the bank purchasing the property itself.
On the central question of whether Erdemann’s appeal was arguable, the court held that the issues raised—including the allegation of sale at an undervalue and questions surrounding the chargee’s purchase of the property—were not frivolous.
“Whether the suit property was sold at an undervalue is not an issue for our determination at this stage. It is an arguable issue,” the judges said.
Regarding the risk that the appeal could be rendered useless if the injunction was denied, the court noted that the bank had not responded to Erdemann’s claims about its inability to compensate the developer.
This silence, combined with the disputed valuation and the high value of the property, persuaded the judges that both limbs required for granting an injunction had been met.
“We are persuaded that in the prevailing circumstances, it is necessary to inhibit any onward sale or transfer of the suit property pending hearing and determination of the appeal,” the bench ruled.
The court also suspended proceedings in the High Court and ordered the parties to fast-track the appeal, directing that it be filed and served within 14 days if not already lodged.
Submissions are to be filed within the same period, and the appeal will be listed for hearing on a priority basis within 60 working days.
