The Dos and Don’ts of an auctioneer while conducting public auctions

A. INTRODUCTION

1. The history of auctions can be tracked down the memory lane of a renowned Greek historian, Herodotus when he made a controverted reference to the auction of brides in Babylon. He propounds that auctioning began during Babylonian times, wherein women were considered the most valuable items for bids. They were auctioned to the highest bidder and the proceeds were used to pay doweries for the less favoured poor. He wrote;

   “Young women who were ready for marriage were collected as a whole lot and put at a commonplace. A crowd of men would form a circle around them. Then, an auctioneer would get each lady to stand one after another and put her for sale. He used to start with the most attractive lady and then, once she had fetched a good price proceed to the second most attractive. They were sold to be wives and not slaves. All the wealthy Babylonian men would outbid one another so as to buy the most beautiful ladies.” (Paraphrased)

2. At this juncture, I put to rest the chronicles of auctions and recommend that you delve into ‘The Brides of Babylon’ authored by Herodotus and remember to have a glimpse of Edwin Long’s famous Artwork ‘The Babylonian Marriage Market’

B. A GUIDELINE ON CHARGEE’S SALE BY AUCTION IN KENYA

3. Section 90 of the Land Act is a haven to a chargee once the loaning relationship with the chargor turns sour. It provides that if a chargor defaults on any obligation under a charge, the chargee may serve on the chargor a notice, in writing, to rectify the default either by paying the money owing or to perform and observe a term of the agreement as the case may be. If the chargor fails to heed to the statutory notices given and/or neglects to rectify the default then the chargee may exercise the legal remedies provided for under the Land Act.
4. Essentially, these statutory notices include; 90-day notice in writing which must state:
   1. the nature and extent of the default by the chargor and if the default consists of the non-payment of any money due under the charge,
   2. the amount that must be paid to rectify the default and the time, being not less than three months (90 days), by the end of which the payment in default must have been completed
   3. the consequence that if the default is not rectified within the time specified in the notice, the chargee will proceed to exercise any of the remedies referred to in section 90 of the Land Act, including the sale of the property, in accordance with the procedures laid down
   4. the right of the chargor to apply to court for relief in respect of certain remedies.
5. Additionally, Section 96(2) of the Land Act provides for a 40-day notice to sell which must be issued before the auctioneer can take over the matter. The court in Yusuf Abdi Ali Co. Ltd vs Family Bank Ltd [2015] eKLR guided on the importance of this notice by stating that:

   “It would therefore be surprising to the court and hardly equitable for a chargee to instruct an auctioneer to advertise the property for sale before a chargor has had had full opportunity to pay. An Auctioneer would essentially be in a position of a football player who is in an off-side position and catches the chargor by surprise as he would be waiting in the wings and hoping the chargor does not pay the outstanding sum so that he can sell the property. In fact, if the two notices were to be issued concurrently a charger would not be certain whether or not he should redeem his property by paying the outstanding sums on the fortieth (40th) day of the notice under Section 96(2) of the Land Act or the forty fifth (45th) day when the notice issued by the Auctioneer would be expiring.”

6. Suffice to note, the auctioneers pounce in at the final stage after the chargor has instructed the auctioneer to sell the charged land. It is at this opportune moment that we discuss the duties that auctioneers must earnestly adhere to while conducting an auction.

C. DUTIES OF AN AUCTIONEER

7. 7. 1. AN AUCTIONEER AS AN OFFICER OF THE COURT IS OBLIGED TO ACT IN A DIGNIFIED MANNER THAT BEFITS THE COURT STANDARDS
   8. Auctioneers are statutory bound to conduct themselves in an honourable manner since they are first officers of the court before being an agent to the instructing party. This position was well articulated by H.K Chemitei J. in Felix Apollo Owuor T/A Victoria Blue Services Auctioneers V Lake Basin Development Authority [2012] eKLR where he held as follows:

“The next issue to determine is whether the auctioneer was an agent of the instructing party or the court. I do agree with the appellant that at all times the auctioneer is the officer of the court in as much as he derives his instructions from the instructing client or agent. His fiduciary responsibility is first of all to the court, as he is ordinarily an officer of the court and by extension the instructing agent. It follows therefore that he must of necessity execute as instructed and pursuant to the court record. He cannot create his own orders or execute as he wishes. He must act as per the records of the court.”

7. 7. Similarly, in Stephen Mwallyo Mbondo v County Government of Kilifi [2021] eKLR B.O.M Manani had this to say;

“Further, I understand auctioneers to be officers of the court. They are actually appointed by the court to execute its orders. To this extent, they are agents of the court. It therefore appears to have been inaccurate for the trial court to have observed that the Appellant’s advocates appointed the auctioneers to execute the warrants in question. This position is made clear in National Bank of Kenya Ltd v Joly Family Stores & another [2005] eKLR, when the court said as follows: –

‘’Contrary to the finding of the trial Court, auctioneers, while executing decrees of the courts, are indeed agents of the Court. It is the courts which give them authority to execute, for example by the different modes of warrants and the same court can order them to stop an execution process.’’

7. 7. Therefore, an auctioneer’s first duty is to the court and thereafter to the instructing client or agent. He must execute his duties strictly within the law and rules of the auction. He cannot purport to manufacture his rules otherwise the long arm of the law will catch up with him within a blink of an eye and punitively punish him.

7. 7. 2. DUTY TO ADHERE TO THE AUCTION RULES WHEN REPOSSESSING, ATTACHING, STORING OR SELLING ANY PROPERTY PURSUANT TO ANY WRITTEN LAW OR CONTRACT
   8. An auctioneer’s conduct is heavily regulated under the Auctioneer Act, 1996 and the Auctioneers Rules, 1997 which provisions must be followed to the latter. An attempt to digress from either the Act or Rules has since been settled in law to be null and void. For instance, the Court in Abdullahi Mohamed Sheikh v Gulf African Bank [2019] eKLR held that;

      “The Auctioneers Rules, 2017 also set out the procedural rules which must be adhered to by an auctioneer in the conduct of a public auction.”

   9. Additionally, the court in Maina Wanjigi & another v Bank of Africa Kenya Ltd & 2 others [2015] eKLR held that an auction is not a private enterprise to be regulated by personal rules. The court further stated that the legality of an auction must be observed at all times. This is what was held verbatim;

      “Whatever transpired in the afternoon was a private arrangement shared into by the parties before the court, and for all intents and purposes, was not a public auction. So, in my view, no public auction took place on 3rd June 2014 involving the suit property…
      secondly, to hold that the Plaintiff ratified and validated the process by attending the afternoon session would amount to giving the auctioneer freedom to change the auction rules with impunity whenever he wills, and especially whenever he thinks that he could wait for a none present bidder to give a higher bid. In that case there would be no need to stage a public auction. The auctioneer may as well develop and carry out his own rules as he pleased.
      Since there was no auction as deemed by the law, whatever transpired on 3rd June 2014 purported to be a public auction, was not a public auction, was an unlawful process which was incapable of conferring any title or proprietary rights to the alleged successful bidder – the 3rd Defendant.”

7. 7. 3. DUTY TO MAINTAIN RECORDS AND BOOKS OF ACCOUNT AND FURNISH THE SAME WITH THE AUCTIONEERS LICENSING BOARD
   8. The Auctioneers Act stipulates that a licensed auctioneer shall comply with the prescribed rules and maintain and furnish documents to the Board when required to do so. Section 23 of the Auctioneers Act provides;

      A licensed auctioneer shall —

      (a) …
      (b) …
      (c) maintain such books, accounts, records or other documents as may be prescribed and furnish the same to the Board at such time and in such manner as may be prescribed.

       

   9. Essentially, an auctioneer is bound by this duty since he or she is ought to hold high levels of accountability and transparency.

7. 7. 4. DUTY TO ENSURE HE/SHE HAS A VALID VALUATION REPORT
   8. Valuation is an important facet and a prerequisite for auctioneers to proceed and sell an immovable property. Rule 11 (b) (x) of the Rules stipulates that;

      “The reserve price for each separate piece of land based on a professional valuation carried out not more than 12 months prior to the proposed sale.”

   9. Suffice to note, the primary provision on valuation and especially forced sale valuation is found in Section 97(2) of the Land Act, 2012 and applies where the charged land is to be sold in the exercise of the power of sale or pursuant to an order of the court. It provides as follows;

      (2) A chargee shall, before exercising the right of sale, ensure that a forced sale valuation is undertaken by a Valuer.

   10. To further illustrate the significance of valuation, Gikonyo J. in Olkasasi Limited -vs- Equity Bank Ltd [2015]eKLR, cited Kasango J. in Zum Zum Investment Limited and Palmy Company Limited -vs- Consolidated Bank of Kenya Limited [2014] eKLR, wherein it was stated as follows;

       “The purpose of valuation under section 97(2) of the Land Act is twofold. The first one is to obtain the best price reasonably obtainable at the time of the sale, thus protecting the right of the Chargor to property …the second one is to prevent unscrupulous chargee from selling the charged property at a price which is peppercorn or not comparable to interests in land of the same character and quality.”

   11. Therefore, an auctioneer is precluded by law from acting when the valuation report is not at his disposal. The valuation ought to be conducted strictly not more than 12 months prior to the proposed sale.

7. 7. 5. DUTY TO ISSUE A REDEMPTION NOTICE
   8. Rule 15 of the Auctioneers Rules forms a foundation on how an auctioneer ought to initiate an auction. The rule provides that:

      15. Immovable property
      Upon receipt of a court warrant or letter of instruction the auctioneer shall in the case of immovable property-

      (a) Prepare a notification of sale in the form prescribed in Sale Form 4 set out in the Second Schedule indicating the value of each property to be sold;
      (b) Locate the property and serve the notification of sale of the property on the registered owner or an adult member of his family residing or working with him or where a person refuses to sign such notification, the auctioneer shall sign a certificate to that effect;
      (c) Give in writing to the owner of the property a notice of not less than forty-five days within which the owner may redeem the property by payment of the amount set forth in the court warrant or letter of instruction;
      (d) On expiry of the period of notice without payment arrange sale of the property not earlier than fourteen days after the first newspaper advertisement
      (e) Record the court warrant or letter of instruction in the register;

       

   9. The fundamentality of the Redemption Notice is premised on Section 96 (2) of Land Act, 2012 which provides as follows;

      “Before exercising the power to sell the charged land, the chargee shall serve on the chargor a notice to sell in the prescribed form and shall not proceed to complete any contract for sale of the charged land until at least forty days have elapsed from the date of the service of the notice to sell”

   10. This position was echoed in Albert Mario Cordeiro & another v Vishram Shamji [2015] eKLR wherein Gikinyo J. stated that;

       “On the basis of the above, in the absence of a Notice to sell under section 96(2) of the Land Act, the Statutory Power of Sale cannot be exercised even if the Statutory Notice, the Notification of Sale and the Redemption Notice have been issued.”

   11. From the foregoing, the 45-day notification of sale by auctioneers is mandatory. It grants the chargor an opportunity to redeem his or her property. Any failure by the Auctioneers to issue the notice will be considered an attempt to clog the right of equity of redemption of the chargee and such an attempt will be contemptuously disdained by the courts.

7. 7. 6. DUTY TO ADVERTISE THE PROPERTY FOR SALE
   8. The Auctioneers Act does not make provisions that an auction be advertised. To proffer an argument that there exists a provision mandating for advertisement, reliance is placed on Rule 16(2) of the Auctioneers Rules which stipulates that;

      (2) Except as may be ordered by a court, advertisement by an auctioneer of a sale by auction of any property, movable or immovable, shall be by way of an advertisement in a newspaper, provided that in the case of perishable goods and livestock advertisement in a newspaper may be dispensed with if adequate notice to prospective bidders in all the circumstances can be achieved by radio or television announcement, or handbills or posters, or other means of communication.

   9. Furthermore, Rule 15 (e) states that once an auctioneer receives a court warrant or letter of instruction from the chargee, he should in the case of immovable property and on expiry of the period of notice without payment, arrange sale of the property not earlier than fourteen days after the first newspaper advertisement. A reader’s glimpse of the Rule reveals that the sale of immovable property by way of the public auction should be advertised in a newspaper.
   10. Moreover, Rule 16 provides the contents of the advertisement to include;
       1. the date, time and place of the proposed sale;
       2. the conditions of sale or where they may be obtained and the time for viewing the property to be sold in addition to any other matter required by the court.

       There is however an exception whereby Rule 16(2) states that perishable goods and livestock should not be advertised. The rationale for advertising is to popularize the auction so as attract a huge pool of prospective bidders as was stated by Court in David Isoe Ayubu v I&M Bank Limited & another; Kipsosion Rerimoi Kipkorir (Interested Party) [2020] eKLR.

   11. Where conditions are set, these conditions must apply to everyone, for a public auction sale must be on level ground for everyone. A bidder can only be declared as a successful bidder if he/she meets the published Conditions of Sale.
   12. Suffice, all participants in a public auction must be subjected to the same rules and no one ought to be given preferential treatment or some rules bent in such person’s favour. In Makatiat Limited vs. Liquidaton Agent Trade Bank Ltd (In Liquidation) & 2 others [2019] eKLR, the Court was emphatic that:

       “…, where conditions are set, these conditions must apply to everyone, and not to some, for a public auction sale must be on level ground for everyone. All participants in a public auction must be subjected to the same rules and no one ought to be given preferential treatment or some rules bent in such a person’s favour.

7. 7. 7. AUCTIONEER NOT OBLIGATED TO RE-ISSUE THE REDEMPTION NOTICE IF AN AUCTION ABORTS OR IS POSTPONED
   8. A candid exposition of the above provision illustrates that there is nothing in the Rules that mandates the Auctioneers to re-issue a Redemption Notice and Notification of Sale if an auction aborts. The court in Anne Wachisi Situma & another v I & M Bank Limited & 2 others [2021] eKLR held that the only requirement is for the auctioneers to re-advertise and 14 days thereafter proceed to re-sell the property.
   9. This has further been reaffirmed by the Court in in Nyando Enterprises Limited v Barclays Bank Kenya Limited [2018] eKLR, where it was held that:

      “In the premises, any averment that no Statutory Notice was served under Section 90 of the Land Act is clearly untenable. It is also immaterial that the Section 90 Notice was issued on 7 June 2016, for, once a valid notice has been given, there is no obligation in law for a Chargee to re-issue a notice, even where the sale is not conducted as initially scheduled. In this respect, I would agree with and endorse the expressions of Warsame, J in;
      Executive Curtains & Furnishings Ltd vs. Family Finance Building Society [2007] eKLR in which he had the following to say: “The plaintiff was given an opportunity to redeem the charge property through the statutory notice dated 24th February 2006. I am not aware of any law requiring the defendant to repeat or reissue the statutory notice once it is issued and served upon the borrower. The purpose of the notice is to warn the borrower that due to his default and due to the outstanding debt, the charged property is susceptible to a sale if he fails to redeem it within 90 days after service of the notice. The period of 90 days is meant to give the borrower sufficient time within which to make arrangements to redeem his charged property. Any time after the expiry of the 90 days, the charged property is out of the hands of the borrower”
      

   10. Indeed, in Zipporah Mwangi Njenga v Housing Finance Limited & another [2014] eKLR Court stated that it would not be appropriate for a chargee and auctioneers to keep on re-issuing notices once a sale has aborted or is postponed. The court reiterated the implication of doing so as follows:

       “Indeed, requiring a chargee to re-issue a statutory notice and an auctioneer to re-issue a forty-five (45) days’ notice would discourage chargees from entering into negotiations with chargors to re-schedule payments of mortgage monies after a sale has been scheduled. Such re-issuance of notices would essentially set back chargee in terms of time that would be spent in realising its securities. Since it would not be commercially or economically viable to enter into such negotiations, the proper procedure is that fresh notices are not re-issued after a sale has been postponed.”

   11. The only duty placed on the Auctioneer is to re-advertise the property for sale as enunciated in Zipporah Mwangi Njenga (Supra) where the court had this to say:

       “These fourteen (14) days’ notices must as a matter of course be re-issued whenever a sale is suspended as the chargor is entitled to its right of redemption until the very last minute.“

   12. Therefore, there is no legal requirement that a chargee to re-issue the statutory notices nor the auctioneer to re-issue the redemption notice when an auction abort or is postponed. The only requirement is the 14-day re-advertisement to inform and invite the public to make bids.

7. 8. AUCTION OUGHT TO BE AN UNINTERRUPTED TRANSACTION
8. Rule 17 (1)(b) of the Auctioneers Rules provides that an auction of immovable property may take place between 10.00 a.m. and 10.00 p.m. the timelines are to be strictly adhered to without any intermittent breaks in between. This position was elucidated in Maina Wanjigi & another v Bank of Africa Kenya Ltd & 2 others [2015] eKLR) wherein E.K.O Ogolla J. in his abundance of wisdom succinctly opined that an Auction is a sacred event and not an impish process. An auction ought to be a chain of causation running uninterruptedly. He further stated that if the chain is interrupted then the process must commence afresh. To quote the Judge verbatim, he had this to say;

   “That, in my view, however, necessarily implies that the auction process must be one uninterrupted transaction. The moment the chain of causation is interrupted, rather than in the normal course of the proceedings for example to break for tea, if that were possible in a single transaction, the entire process must commence afresh.An auction process cannot purport to wait for bidders or to pick bidders enroute. The process once started must retain its integrity. The conduct thereof must not leave room for speculation. The auctioneer cannot conduct an auction in a manner to leave the impression that he expects hitherto none present bidders to offer better bids…”

9. From the foregoing, once the process is interrupted, the advertisement must take place afresh and 14 days thereafter the property be put at the altar of public auction. The court’s rationale was that the public must be informed of the sale so that there can be new bidding. An auctioneer cannot conduct a public auction as if it is a private auction. The sanctity of auctions must be observed at all times.
10. Therefore, an auction is a continuous process and once interrupted, the process of the advertisement must be conducted again. This is to inform and invite the public to make new bids.

CONSEQUENCES ON FAILURE TO ADHERE TO THE LAW

35. It should be noted that if the Auctioneer fails to comply with the rules appurtenant to an auction, the licence of such an auctioneer may be suspended or revoked pursuant to the provisions of Section 28 of the Auctioneers Act which provides that;

    Court may order revocation or suspension of licence
    (1) court in imposing a penalty on a licensed auctioneer for an offence under this Act or under any other written law may, if in the opinion of the court, the offence is of such nature as to warrant the suspension or revocation of the auctioneer’s licence, order the suspension or revocation of the licence
    (2) The court shall forthwith notify the Board of every order under subsection

36. Additionally, a complaint may be lodged before the Auctioneers’ Licensing Board as stipulated under Section 24 of the Act and hereinbelow are the punishments that can be meted out to an auctioneer if found guilty of misconduct;
    1. The auctioneer can be admonished,
    2. His licence can be suspended for a period not exceeding six (6) months,
    3. His licence can be revoked
    4. Such condition or conditions as the Board deems appropriate can be attached to the auctioneer’s licence.
    5. He can be ordered to pay a fine not exceeding Kshs.100,000/=
    6. He can be ordered to pay compensation not exceeding Kshs.100,000/= to the person demnified by the auctioneer’s misconduct,
    7. That he can be disqualified from holding a licence for such period as the Board thinks fit and
    8. Such combination of the above orders as the Board thinks fit.

     

E. CONCLUSION

37. From the foregoing discussion, we have observed that public auctions ought to be conducted with utmost diligence and adherence to the law and rules appurtenant thereon. The process should not deny the chargee its right to realize security nor should it clog the chargee’s right of equity of redemption.
38. Indeed, an auction is a sacred event that should be undertaken with utmost integrity. An auction process is a spring flowing from one event to another as laid down in the Auctioneers Act and the Rules. Any attempt to digress from the set guidelines as has been pronounced by court is illegal, unprocedural and fatally defective.

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