The High Court, in a recent judgement, granted reprieve to financial institutions when exercising their statutory power of sale. This position is fortified in the Constitution’s Section 104 of the Land Act, which explains the court’s power in respect of remedies and reliefs. Sub-Section 2 of Section 14 highlights instances in which the court may refuse to grant an order sought under the provisions of Section 104 (1) and, instead, grant remedies against the operation of relief based on the circumstances of the case. The same will not be limited to the generality of those powers, and the court may authorise the remedy sought by the chargee notwithstanding any procedural errors made during the service of default notices in connection with the remedy if the court is satisfied that:

1. The chargor or the person applying for relief was made fully aware of the action required to rectify the default or the action to be taken in connection with the remedy.
2. There would be no injustices/harm occasioned in the court approving the remedy sought and may authorise that remedy on any conditions as to expenses, damages, compensation or any other relevant matter as the court thinks fit.

Section 90 of the Land Act provides lenders with certain remedies that they may undertake if a borrower defaults. Among them is the statutory power of sale. This is exercised when the borrower has defaulted on their obligation, fails to pay interest or any other periodic payment or any part thereof and continues to be in default for one month. The lender may serve the chargor a notice in writing to pay the money owing or perform and observe the agreement. Further, the default notice may contain a clause on the non-payment of any money due under the charge, the amount that must be paid to rectify the default and the time, being not less than three months, by the end of which the payment in default must have been completed. Upon expiry of the period of default, the chargee may then exercise their remedies. Section 96 states that the chargee must serve a notice of sale at least 40 days before the actual sale of the charged property.

In exercising this right, the chargee, as per the proviso of Section 97 of the Land Act, has to ensure that the charged property is sold at the best obtainable price, and any excess sums of money would be remitted to the borrower or their guarantor. In addition, the chargee must ensure that the charged land is not sold at 25% or below the market value at which comparable interest in the land of the same character and quality is being sold in an open market.  If this sale occurs at a lower value than the market value, then it will be considered that the chargee is in breach of the duty.

For the most part, borrowers have always been successful in restricting the sale via court-ordered injunctions. To get the injunction, the borrowers have to prove to the court that, first, there is a prima facie case and that there is a likelihood of success. Second, there is harm to be suffered, which may not be repairable with compensatory damages. An example of this would be that the borrower would be left homeless. Third, the court may decide on the application on a balance of convenience. Upon examination of the matter to its closure, there is an open conclusion that a right has been infringed.

It is not sufficient for the applicant to merely claim that the intended selling price is not the best price obtainable at the time by producing a counter-valuation report. The applicant must satisfactorily demonstrate why the valuation report that the respondent intends to rely on in disposing of the suit property does not give the best price obtainable at the material time….The applicant needs to show, for instance, that the respondent’s valuer is not qualified or competent to carry out the valuation, that the valuation was carried out in consideration of irrelevant factors or that the valuation was done before the time of the intended sale.

Criteria to obtain an order under section 104(2)(d)

While relying on the court judgment, a chargee must fulfil the following conditions to obtain the reliefs sought under section 104(2)(d).

1. A chargee ought to exercise a duty of care in the exercise of the statutory power of sale as stipulated under Section 97 (1) of the Land Act.
2. A chargee must comply with the dictates of Sections 97(2) of the Land Act by conducting a current valuation Report before conducting an auction sale.
3. The chargee must demonstrate the numerous failed attempts to sell the charged property by public auction at/above the forced sale value.
4. The outstanding loan amount has outstripped the value of the security.
5. The borrower has not attempted or taken steps to settle the outstanding amount.
6. A public auction sale below the forced sale value is the only viable option to recover the monies owed and reduce further exposure.

Conclusion

Financial Institutions may have a reprieve when enforcing their right to sale; however, courts may need to exercise discretion and a balance of probabilities. This would ensure that Borrowers do not bear the brunt of the repercussions when forced sales occur.