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WHAT THE SENDY LTD HIGH COURT CASE MEANS FOR DIGITAL PLATFORMS & BUSINESSES

INTRODUCTION

Technology has greatly evolved, and with such, digital platforms have transformed how business is done in Kenya and beyond. Many businesses now fully operate on digital platforms, whereby their business models involve providing services without owning physical assets, yet they play a critical role in connecting customers,
service providers, and payments. As these business models have grown, so too have questions around Value Added Tax (VAT). The drafters of the Value Added Tax Act (Cap 476) designed the provisions therein
with tangible goods and identifiable services in mind. However, applying the said provisions to digital platforms has proved to be more complex.

Recent decisions from the Tax Appeals Tribunal and the High Court have shown the complexity of applying provisions of the VAT Act on digital platforms. This article explores how VAT works in general, why digital platforms present unique challenges, and what recent decisions from the tribunal and the High Court mean for businesses operating in Kenya’s digital economy.

WHAT IS VAT AS PROVIDED BY LAW?

VAT in Kenya (as per the Value Added Tax Act Cap. 476) is a consumption tax imposed on the supply of goods and services. Although businesses are required to collect and remit VAT, the tax is ultimately borne by the end consumer.

When a VAT-registered business sells goods or services, it adds VAT to the selling price (this is called output VAT). The business can also claim back the VAT it has paid on its own business purchases and
expenses (this is called input VAT). The business then remits the difference between the VAT it collected and the VAT it paid. For VAT to apply, three basic conditions must be met:

1. There must be a supply of goods or services.
2. The supply must be made by a person or business registered (or required to be registered) for VAT.
The supply must be made in the course of doing business in Kenya.

This sounds simple, but more often than not, problems can arise in practice. Sometimes it is not clear whether a supply has actually been made, who is making the supply, or what exactly is being supplied.
This is especially common in business models, such as digital platforms, as explained below.

WHY DIGITAL PLATFORMS
TRADITIONAL VAT THINKING
CHALLENGE

The reason why applying the traditional rules of VAT on digital platforms is complex is that most of these digital platforms only act as intermediaries. They act as “middlemen” connecting consumers to service providers. They only provide the technology to facilitate the transactions, and in many instances, they are not the ones who provide the actual services. Take for example, the common digital platforms only to the platform’s commission or service fee? Who is responsible for accounting for VAT in the overall transaction?
These questions have raised disputes with the Taxman, who in most instances takes a broad interpretation in relation to payable VAT. Recent court decisions have now provided the much needed guidance on such disputes.

DECISIONS EMERGING FROM THE COURTS

In a recent High Court decision in Commissioner of Domestic Taxes v Sendy Limited (Income Tax Appeal E137 of 2024) [2025] KEHC 14814 (KLR), the court clarified instances where digital platforms may be deemed to be principal suppliers for VAT purposes, therefore liable for VAT on the full transaction paid by the customer rather than just the commission or service fee. like “Uber”, “Airbnb”, “Jumia”, just to name but a few.

Background This unique situation raises important questions. Is the platform supplying a service to the customer, or is it simply enabling a transaction between third parties? Should VAT apply to the full value
of the transaction, or Sendy Limited (Respondent) operated a digital marketplace for delivery services
connecting third-party customers with independent transporters.

According to the Respondent, the transport services were provided by the third-party suppliers, and the Respondent’s income was limited to its commissions charged to the transporters for the use of its platform.

In its case before the Tax Appeals Tribunal, the Respondent showed its audited financial statements,
sample commission agreements with transporters, and witness testimony to support its assertion that it had
accounted for the VAT on its commissions. Additionally, the Respondent had earlier received a private ruling from the Appellant that the Respondent was liable for VAT only on its commissions. The Tribunal ruled in the
Respondent’s favor, finding that it did not provide transport services.

The Commissioner of Domestic Taxes (Appellant), on the other hand, stated that the Respondent was the principal supplier of the transport services. According to the Appellant, the Respondent exercised significant control over the services provided on its platform. The Respondent controlled the customer relationship
through its digital application, dispatched the nearest available driver, determined the price, issued the demand for payment, and, most importantly, received full payment for the services.

The Appellant therefore argued that the Respondent was liable for VAT on all fees collected from the customers, not just from commission. Determination The main issue for determination was whether the Tribunal erred in concluding that the Respondent was not supplying transport services. In addressing this issue, the court examined section 5 of the VAT Act and noted that the Act provides for a broad definition for supply of goods, but it does not establish specific criteria for identifying the supplier in intricate, multi-party arrangements conducted through digital platforms.

In the absence of specific provision under our domestic laws, the court turned to jurisprudence arising from the Court of Justice of the European Union (CJEU) under the harmonized EU VAT framework. A foundational principle in EU VAT Law is that the characterization of a transaction must be based on its objective characteristics, reflecting its economic and commercial reality.

It considered Article 28 of the EU VAT Directive, which stipulates that an intermediary acting in its own name but on behalf of another is treated as having both received and supplied the underlying service. The court reviewed several CJEU authorities, including a decision establishing that a digital platform is presumed to act in its own name and thus to be the deemed supplier, where it participates in the supply. The CJEU further held that this presumption becomes conclusive where the platform either;

(i) authorizes the charge to the customer or the delivery of the service, or
(ii) determines the general terms and conditions of the supply. In short, the degree of control a platform
exercises over the underlying supply is the critical determinant. As such, the High Court overturned the
decision of the Tribunal and allowed the Appeal. It found that Sendy Ltd exercised substantial control
over the core components of the transaction by fixing prices, allocating drivers, and overseeing the invoicing and payment process. On that basis, the Court concluded that Sendy functioned as the principal supplier for VAT purposes.

With respect to the prior private ruling from the KRA, the court acknowledged that Section
65 of the Tax Procedures Act renders such rulings binding to the commissioner. However, it held that this binding effect does not diminish the judiciary’s constitutional mandate to interpret laws.

IMPLICATIONS OF THE JURISPRUDENCE FROM THE COURT
The emerging jurisprudence implies that VAT compliance for digital business requires meticulous planning. Their liability for VAT compliance is determined by their substantive role in the transactions rather than what they have labelled themselves. Therefore, businesses in the digital platform should regularly review their positions to ensure they are always compliant.

The decision also means that taxpayers might have to reconsider prior private rulings from the KRA, because while Section 65 of the Tax Procedures Act renders such rulings binding to the commissioner, the court stated that it cannot diminish the role of the Courts in interpreting the law.

HOW ESK ADVOCATES LLP CAN ASSIST
The Sendy Limited decision confirms that VAT liability in Kenya’s digital economy depends on economic
substance and operational control — not labels. Our Tax Law Practice helps digital platforms, fintech
companies, SMEs, and corporates assess and manage VAT risk with clarity and precision.

We assist with : VAT risk assessments for digital platforms Structuring marketplace and commission models
KRA objections, tax disputes, and appeals Private ruling applications and regulatory advisory
Proactive VAT compliance reviews If your business controls pricing, customer relationships, or payment flows, your VAT exposure may extend beyond commissions.

INTRODUCTION
Imagine paying your insurance premiums faithfully for years, only to find that when you need coverage
most, following an accident or liability claim, your insurer is insolvent. Worse, imagine being personally
exposed to court decrees and execution of your assets because the insurance company you trusted can
no longer meet its obligations.
This was the reality for hundreds of policyholders of United Insurance Company Limited. However, a
recent landmark judgment by the Court of Appeal at Nairobi in Civil Appeal No. 61 of 2014, Commissioner
of Insurance -vs- Kensilver Express Limited & 192 Others has set a powerful precedent for insurance
consumers in Kenya.

The Case That Changed the Landscape United Insurance Company Limited, a Kenyan motor vehicle insurer, faced liquidity crisis from 1999 onwards. The Insurance Company was in the business of issuing third party insurance policies in particular, to public service vehicles.

The Commissioner of Insurance was aware of the company’s deteriorating financial position from 1999 and he found that the major problem facing the company was failure to separate ownership of the company from its management. Over the years, the Commissioner took various administrative steps such as: facilitating management restructuring, directing asset sales, and attempting to negotiate with the insurer’s principals.
These efforts did not yield any fruits which eventually led to the company being placed under Statutory Management.

The Commissioner of Insurance with the approval of the Minister of Finance appointed Kenya Reinsurance Corporation (Kenya Re) as the Statutory Manager under Section 67C of the Insurance Act (Cap 487). On 18th July, 2005, Kenya Re declared a moratorium through the daily newspaper for a period of one year. This meant that the Insurance Company could not give legal representation to their clients and if Judgment was entered against them, they could not settle the decretal sum.

As a practical consequence, 193 Judgment Creditors, mostly motor vehicle accident victims or their  dependents had their court decrees frozen. The Judgment Debtors were forced to settle the decretal sums and those who were unable to do so, faced civil imprisonment. The policyholders approached the court, arguing that their constitutional rights to liberty and peaceful ownership of property were violated by the regulatory failure to

Findings from the
Court of Appeal Judgment

1. Regulatory Diligence is Mandatory 

The Court affirmed that the Commissioner of Insurance and the Minister of Finance have a statutory
duty to act with expediency and diligence in the public interest, and cannot sit on known financial
troubles of an insurer until it is too late. While the Court of Appeal noted the Commissioner had held
meetings to try and salvage United Insurance when it began showing signs of trouble in 1999, it
affirmed that delaying intervention while knowing an insurer is failing constitutes a breach of duty to
the public, as regulators must act before a collapse becomes inevitable.

Why It Matters to You:

•Preventive Protection: Regulators cannot wait until an insurer is completely insolvent
before stepping in. If the Commissioner of Insurance delays intervention while knowing
an insurer is distressed, policyholders left exposed during that delay may have grounds
for recourse.

•Continuity of Cover: The law expects regulators to prioritize the continuity of insurance
cover for the public. If regulatory delay leaves you uninsured against third-party claims,
the state may bear responsibility for the gap.

2. Government Liability for the Compensation Fund Perhaps the most significant holding for consumers was regarding the Policyholders Compensation Fund (PCF). The Court held that the Government was responsible for losses suffered due to the failure to operationalize the PCF because it exists specifically to cushion policyholders when insurers become insolvent or when they are under Statutory Management. Although the
Fund existed in law since 1985, it was not operational until 2005. The Court ruled that this delay violated policyholders’ rights.

Why It Matters to You:

•State Liability: While the Policyholders Compensation Fund is now active, this judgment establishes that the Fund exists to protect you, not to create hurdles. The Insurance Act provides that the Policy-holders Compensation Fund shall provide compensation to the claimants of insurer placed under a manager or whose license has been cancelled under the Act

•Safety Net Enforcement: The Court affirmed that the Fund’s purpose is to compensate policyholders of insolvent insurers. This strengthens your legal position when filing claims against the PCF for Xplico or Invesco policies. It is a statutory right.

3. Constitutional Rights

Trump Administrative Moratoriums The judgment reinforces that administrative measures like moratoriums and statutory management cannot indefinitely violate fundamental constitutional rights to liberty and peaceful ownership of property. The case arose because policyholders were facing execution of decrees, seizure of assets, and even civil imprisonment because their insurer could not pay third-party claims during the moratorium.
The Court recognized that while regulators may implement temporary protective measures to address
insolvency, these measures cannot leave policyholders indefinitely vulnerable to enforcement actions or strip them of constitutional protections. The balance between administrative convenience and individual rights must ultimately favor the policyholder when the state has failed to prevent the collapse or provide timely alternative remedies.

Why It Matters to You:

•Protection from Personal Liability: If you held a valid third-party policy, you should not be personally liable for debts the insurance was meant to cover. If an insurer’s insolvency exposes you to personal execution, the law provides avenues to stay those proceedings.

• Human Rights Compliance:
The judgment affirms that policyholders cannot be subjected to civil jail merely because their insurer failed to meet its obligations. The High Courtreferenced United Nations Conventions prohibiting imprisonment for debt. A principle that remains persuasive authority for protecting insured persons from personal liberty violations arising from insurer insolvency

PRACTICAL LESSONS
EVERY POLICYHOLDER
SHOULD KNOW

From the Landmark Kensilver Judgment & the current Insurance Landscape
1. Verify Before You Buy4. Documentation Is Your Shield United Insurance had liquidity problems as early as
1999—but policyholders kept paying premiums unaware.
Always confirm your insurer’s licensing status and financial health via the Insurance Regulatory
Authority (IRA) portal before purchasing or renewing cover.The petitioners had to prove they were genuine
policyholders with valid contracts. The Court emphasized strict verification to eliminate fraud,
but also protected bona fide claimants.

2. Conflict of Interest in Statutory Management Is Unlawful
The Court held that Kenya Reinsurance Corporation ought not to have been appointed Statutory
Manager of United Insurance because, as a reinsurer, it was potentially a debtor to the insolvent
insurer therefore creating a real or potential conflict of interest.
The entity managing your insurer (e.g., PCF managing Xplico) must act solely in your interest and not to protect its own financial exposure. Any bias or conflict that delays or reduces your settlement is legally challengeable.

3. Your Cover Survives
Insurer Insolvency, if You Act The Court affirmed that policyholders retain enforceable rights under their insurance contracts even when the insurer is under statutory management. The moratorium suspends claims settlement however, it does not eliminate your cover. If your insurer is placed under Statutory Manage
ment or is insolvent, one can still get compensation through the Policyholders Compensation Fund
under Section 179 (1) of the Insurance Act (Cap 487) Your policy documents, premium receipts, claim
forms, and correspondence are critical evidence. Without them, even valid claims may be rejected.

5. Your Constitutional Rights Shield You from Personal Execution Policyholders cannot be indefinitely exposed to asset seizure or civil jail merely because their insurer failed to pay decretal sums in Judgments.
If you face personal liability due to an insurance company being placed under Statutory Manage-
ment or is insolvent therefore unable to pay decretal sums owed, seek urgent legal intervention to
stay execution proceedings.

How ESK Advocates LLP Can Help

Navigating insurance insolvency, statutory management, and claims against the Policyholders
Compensation Fund requires specialized legal expertise. The legal framework is complex, and
insurance companies often rely on technicalities to deny claims.

Don’t let insurance failure compromise your future. The law is on your side, but you need the right
advocates to enforce it. The Commissioner of Insurance v Kensilver Express Limited judgment
proves that with diligent legal representation, your rights can be protected. If you are facing challenges with an insurance claim, an insolvent insurer, or regulatory disputes, contact us today for a consultation.

Tax compliance in Kenya operates within a self-assessment system. This means that responsibility is placed upon the taxpayer to accurately declare and remit taxes that are due.

Most recently, the Kenya Revenue Authority has intensified its efforts in collecting revenue, and in its routine audits and assessments, disputes are bound to arise with the taxpayers. Such disputes pose significant issues to business and individuals. That is why the Tax Procedures Act provides for a framework within which such disputes are resolved. In this Article, we unpack the tax dispute resolution process in Kenya and the avenues available to resolve tax-related disputes.

Understanding Tax Disputes Under Kenyan Law

A tax dispute generally arises when a taxpayer disagrees with a tax decision issued by the Commissioner of the KRA. Such disputes often arise from issues such as additional assessment of the taxes due, denial of deductions or exemptions, imposition of penalties and interests, refusal to grant a tax refund, or a difference in the interpretation of tax laws.

Under the Tax Procedures Act, the Commissioner is not bound by the information provided by a taxpayer and may instead assess the tax payable using information available to him. This is a broad statutory power which, while on one end is necessary for efficient revenue collection, it is often a trigger to tax disputes, particularly when a taxpayer views the assessment by the Commissioner as excessive or arbitrary.

Due to such disputes, there are certain dispute resolution systems put in place to ensure tax disputes are handled internally before the matter escalates to other litigation forums at the Tribunal or the Courts.

Commencing a Tax Dispute: The Objection Process

The first and most critical step in resolving a tax dispute in Kenya is the lodging of an objection against the Commissioner’s decision.

A taxpayer who is dissatisfied with a tax decision must submit a Notice of Objection within 30 days of being notified of the decision. This objection must be precise, comprehensive, and supported by relevant documentation. The law requires the taxpayer to clearly outline the grounds of objection, the amendments sought, and the reasons supporting those amendments.

In cases involving tax assessments, the taxpayer must also pay the undisputed portion of the tax or apply for an extension of time to do so. Failure to meet these statutory requirements may result in the objection being deemed invalid, effectively closing the door to further dispute resolution avenues.

Once a valid objection is lodged, the Commissioner is required to issue an objection decision within 60 days. If the commissioner does not issue a decision within the 60 days, the objection is deemed to be allowed. This is done so as to prevent any delays which would otherwise greatly prejudice a taxpayer.

Alternative Dispute Resolution

Prior to 2015, most tax disputes ended up in litigation. However, since then, Alternative Dispute Resolution has been incorporated in tax disputes, which has significantly reduced the backlog and strain on resources for both the taxpayer and KRA.

Just like ADR in other forums, ADR under the KRA framework is a voluntary, facilitated mediation process that allows taxpayers and the Commissioner to resolve disputes outside the Tax Appeals Tribunal or courts. It is a seamless avenue through which parties can achieve a mutually acceptable outcome without the fuss and adversarial nature of litigation.

ADR may be initiated at various stages of the dispute, including:

• Before an objection decision is issued
• During proceedings before the Tax Appeals Tribunal
• While a matter is pending before the courts (with leave)

However, ADR is not suited for all kinds of disputes. For instance, matters involving constitutional issues or serious questions of law, or a matter that requires judicial interpretation, cannot be subject to ADR.

Appeals Before the Tax Appeals Tribunal

When objections and ADR do not resolve the dispute, the next battleground is the Tax Appeals Tribunal (TAT).

An appeal to the Tribunal must be filed within 30 days of receiving the objection decision from the Commissioner. In lodging the Appeal, a dissatisfied taxpayer is required to file a Notice of Appeal, followed by a Memorandum of Appeal, a Statement of Facts, and the Commissioner’s decision within 14 days after filing of the Notice of Appeal.

It is also important to note that a Notice of Appeal to the Tribunal relating to an assessment is only valid if the taxpayer has paid the tax not in dispute or entered into an arrangement with the Commissioner to pay the tax not in dispute under the assessment at the time of lodging the notice. The taxpayer is also expected to pay a refundable fee of 20,000 shillings for lodging the Appeal.

The Notice of Appeal should be served to the Commissioner within two days, and the Tribunal is mandated to hear and determine appeals within 90 days of filing. Proceedings before the Tribunal are less formal than court litigation, but they remain evidence-based. The Tribunal’s decision is binding and enforceable as a court judgment, subject to appeal on points of law.

Litigation Before the High Court and Court of Appeal

A party dissatisfied with the Tribunal’s decision may appeal to the High Court, strictly on questions of law. Such appeals must be lodged within 30 days, although the Court may extend this period in appropriate circumstances.

Further appeals lie to the Court of Appeal, again limited to legal issues and questions on points of law.

Who bears the burden of proof?

In Kenyan tax disputes, the burden of proof rests on the taxpayer. The taxpayer must demonstrate that the Commissioner’s decision is incorrect. This is now well settled by the courts in various decisions.

In Commissioner of Domestic Taxes v Metoxide Africa Limited (Tax Appeal E121 of 2021) [2022] KEHC 14613 (KLR), Justice Majanja aptly explained the nature of the burden of proof in tax disputes as follows;

“The question before the court that was also before the Tribunal was whether the Respondent discharged its burden of proof by demonstrating that the Commissioner was incorrect in its decision. It should not be lost that the burden of proof in tax matters is not stationary but is like a pendulum swinging between the taxpayer and taxman at different points but more times than not swings towards the taxpayer. The uniqueness of our tax system in placing the evidential burden of proof on the tax payer is neither a mistake nor is it unconstitutional. In Republic v Kenya Revenue Authority; Proto Energy Limited (Exparte) (Judicial Review Application E023 of 2021) [2022] KEHC 5 (KLR) (24 January 2022) (Judgment) the court stated that:

(48)

The most significant justification for placing the burden of proof on the tax payer is the practical consideration that the Commissioner cannot sustain the burden because he does not possess the needed evidence. Under the system of self-reporting tax liability, the taxpayer possesses the evidence relevant to the determination of tax liability. It is simply fair to place the burden of persuasion on the taxpayer, given that he knows the facts relating to his liability, because the commissioner must rely on circumstantial evidence, most of it coming from the taxpayer and the taxpayer’s records. The taxpayer must present a minimum amount of information necessary to support his position. This safety valve seems to place the burden of production on the taxpayer without relieving the Commissioner of the overall burden of proof. The tax payers’ evidence must meet this minimum threshold.

(49) A presumption of correctness arises from the Commissioner’s determination/assessment. The presumption remains until the taxpayer produces competent and relevant evidence to support his/her position. When the taxpayer comes forward with such evidence, the presumption vanishes and the case must be decided upon the evidence presented.

As such, it is clear that the evidential burden of proof rests with the taxpayer to disprove the Commissioner and that once competent and relevant evidence is produced, then this burden now shifts to the Commissioner.

Conclusion

The Tax Procedures Act, 2015, provides a structured and comprehensive framework for resolving tax disputes in Kenya within which taxpayers have different avenues to address tax disputes. However, the effectiveness of these mechanisms largely depends on an informed strategy. Tax disputes can be complex, but if handled correctly, a tax dispute can be resolved efficiently and on favourable terms.

Speak to Our Tax Dispute Resolution Team at ESK Advocates LLP

If you are facing a tax assessment, audit, penalty, or enforcement action by the Kenya Revenue Authority, early intervention is critical.

At ESK Advocates LLP, we advise and represent taxpayers across the various tax dispute issues from objections and Alternative Dispute Resolution to Tribunal proceedings and complex tax litigation. Our approach is strategic and commercially focused to ensure the most favourable outcome.

Contact us today to discuss your tax dispute and explore the most effective path to resolution.

Introduction

The statutory power of sale is one of the most potent remedies available to a chargee under Kenyan banking and finance law. It allows a lender, upon default by a borrower, to sell charged property without recourse to court, provided strict statutory requirements are complied with. Because the remedy directly interferes with proprietary rights, Kenyan courts have consistently held that the power must be exercised strictly in accordance with the law. Any deviation renders the sale vulnerable to challenge.

This article sets out the process and pre-requisites of the statutory power of sale in Kenya, guided primarily by the Land Act, 2012, the Auctioneers Act and Rules, and established judicial principles.

Definitions

For purposes of this article, and as used under the Land Act, 2012:

“Chargee” refers to a lender or creditor in whose favour a charge or mortgage is created as security for the repayment of a loan or performance of an obligation. The chargee holds a proprietary interest in the charged land and is entitled, upon default and subject to statutory compliance, to exercise the statutory power of sale.

“Chargor” refers to the borrower or owner of land who creates a charge or mortgage over property in favour of a chargee as security for a debt or obligation. The chargor retains ownership of the property subject to the charge and enjoys statutory protections governing enforcement.

1. FOUNDATIONAL PREREQUISITES
2. Existence of a Valid Charge or Mortgage

The statutory power of sale can only arise where there exists a valid and enforceable charge or mortgage. The charge must be properly executed and registered against the title. It must secure a lawful debt, and the chargor must have had legal capacity at the time of execution.

Although most charge instruments expressly provide for the power of sale, the power is in any event implied by statute, and its absence in the charge does not defeat the chargee’s right once default occurs.

2. Default by the Chargor

The power of sale only crystallises upon default. Default commonly arises from non-payment of principal, interest, or breach of other contractual obligations under the charge. Crucially, the default must be continuing and unremedied at the time statutory notices are issued. Where default has been cured, the power does not arise.

3. Debt Must Be Due and Ascertainable

The outstanding debt must be clearly quantified. The lender must be able to demonstrate the exact amount owing, including principal, interest, and penalties, calculated strictly in accordance with the charge instrument. Courts have frowned upon vague or exaggerated demands.

1A. INFORMAL CHARGES

In addition to formal registered charges, Kenyan law recognises informal charges under Section 79(6) of the Land Act. An informal charge may arise where land is offered as security through a written agreement, deposit of title documents, or other arrangement evidencing an intention to charge land, even where a formal charge has not been registered.

While an informal charge does not immediately confer the statutory power of sale, the chargee may apply to court for an order to enforce the informal charge, including by sale. The court may direct that the informal charge be perfected into a formal charge or grant leave to realise the security in a manner it considers just.

Importantly, the statutory power of sale does not arise automatically in respect of an informal charge. Judicial intervention is mandatory before enforcement, and lenders seeking to rely on informal security must strictly comply with court directions and statutory safeguards.

1. STATUTORY NOTICES: MANDATORY AND SEQUENTIAL
2. Statutory Notice under Section 90 of the Land Act

Section 90 of the Land Act is the foundation of the statutory power of sale. The notice must be issued after default and must run for a minimum of ninety (90) days. It must be in writing and must clearly specify:

• The nature and extent of the default;
• The amount required to rectify the default;
• The ninety-day period within which to comply;
• The chargor’s right to apply to court for relief; and
• The consequences of failure to comply, including sale, appointment of a receiver, or taking possession.

Proper service of the notice is mandatory. It must be served on the chargor, and where applicable, the spouse (if the property is matrimonial property) and any guarantor.

Kenyan courts are unequivocal that a defective Section 90 notice invalidates the entire sale process, regardless of subsequent compliance.

5. Notice to Sell under Section 96(2) of the Land Act

Upon expiry of the Section 90 notice without remedy of default, the chargee must issue a Notice to Sell under Section 96(2). This notice must give a minimum of forty (40) days and must clearly communicate the intention to sell the charged property.

The notice must be served on:

• The chargor;
• The chargor’s spouse;
• Any lessees or tenants; and
• Any guarantors.

The Section 96 notice cannot be issued prematurely and must strictly follow the lapse of the Section 90 notice.

1. VALUATION REQUIREMENTS
2. Forced Sale Valuation under Section 97 of the Land Act

Before exercising the power of sale, the chargee must obtain a current forced sale valuation conducted by a qualified and independent valuer. The valuation must reflect both the market value and the forced sale value of the property.

Section 97 imposes a statutory duty of care on the lender to obtain the best price reasonably obtainable at the time of sale. Failure to conduct a valuation, reliance on an outdated valuation, or sale at a gross undervalue exposes the lender to liability for breach of statutory duty.

1. MODE OF SALE
2. Choice of Sale Method

The chargee may sell the property by public auction or private treaty. While public auction is the preferred and most common method, private treaty is permissible provided it is demonstrably aimed at achieving the best price obtainable. Courts scrutinise private sales more closely due to the risk of undervaluation or collusion.

8. Auctioneer’s Statutory Notices

Where sale is by auction, compliance with the Auctioneers Act and Rules is mandatory.

(a) Redemption Notice

Under Rule 15 of the Auctioneers Rules, the auctioneer must issue a forty-five (45) day redemption notice, served personally. The notice must state the amount due and inform the chargor of the right of redemption.

(b) Notification of Sale

After lapse of the redemption notice, the auctioneer must issue a Notification of Sale, specifying the date, venue, and reserve price of the auction.

1. ADVERTISEMENT REQUIREMENTS
2. Advertisement of Sale

The sale must be advertised in a newspaper of nationwide circulation at least fourteen (14) days before the auction. The advertisement must accurately describe the property and should not be misleading. Defective or misleading advertisements may invalidate the sale.

1. CONDUCT OF SALE

On the sale date, the auction must be conducted transparently and in accordance with the advertised terms. The highest bidder at or above the reserve price is declared the purchaser.

1. POST-SALE OBLIGATIONS
2. Application of Sale Proceeds

Under Section 97(3) of the Land Act, sale proceeds must be applied in the following order:

1. Costs and expenses of sale and auction;
2. Interest due;
3. Principal debt; and
4. Any surplus to the chargor.

The chargee must render proper accounts to the chargor.

Transfer and Discharge

Upon completion, the chargee executes the transfer in favour of the purchaser, discharges the charge upon full settlement, and facilitates registration of the transfer.

CHARGOR’S REMEDIES

A chargor retains the right to redeem the property before the fall of the hammer. The chargor may also challenge defective notices, undervaluation, or bad faith. Post-sale, remedies are generally limited to damages, rather than reversal of the sale.

CONCLUSION

The statutory power of sale is not merely a contractual right but a heavily regulated statutory process. Compliance with timelines, notices, valuation, and sale procedures is not optional. For lenders, strict adherence safeguards recovery; for borrowers, it provides critical protection against arbitrary deprivation of property. Ultimately, the statutory power of sale succeeds or fails on procedural precision.

Introduction

Banking and finance law in Kenya provides the legal framework that governs the relationship between financial institutions, their customers, and the regulatory environment within which banks operate. At the centre of this framework are due diligence obligations, prudential compliance, and institutional accountability in the banker–customer relationship. While banking relationships are fundamentally contractual, Kenyan courts have consistently affirmed that banks owe elevated duties of care arising from the trust reposed in them and their control over financial systems. Recent judicial decisions have underscored that failures in internal controls, mandate verification, or transaction monitoring may expose banks to liability, even where fraud is sophisticated or concealed. This article examines the legal foundations of banking and finance law in Kenya, with a focus on due diligence, bank liability, and emerging judicial guidance on how risk is allocated between banks and customers.

The Legal Foundations of Banking and Finance Law

The regulatory framework governing banks in Kenya includes the Banking Act, the Central Bank of Kenya Act, the Proceeds of Crime and Anti-Money Laundering Act (POCAMLA), and the CBK Prudential Guidelines. Together, these instruments impose obligations relating to licensing, capital adequacy, risk management, internal controls, and consumer protection.

Beyond statute, banking law is shaped by common law principles, particularly in relation to contract, tort, agency, and restitution. Courts have consistently held that banks are expected to act with a high degree of professionalism due to the nature of their business and the public trust reposed in them.

Duties of Banks in the Banker Customer Relationship

While the banker-customer relationship is fundamentally contractual, courts have recognized that banks owe customers additional duties arising from the nature of their operations. These duties include:

• Duty to exercise reasonable care and skill in executing customer instructions;
• Duty to act in good faith, honestly, and without conflict of interest;
• Duty to safeguard customer funds against unauthorized access or misuse;
• Duty to comply with regulatory and prudential standards; and
• Duty to maintain effective internal controls to prevent fraud and error.

Importantly, banks are not expected to act as insurers against all loss. However, where loss arises from procedural failures, internal collusion, or negligent execution of mandates, liability may attach notwithstanding the existence of contractual disclaimers.

Due Diligence as a Core Banking Obligation

Due diligence is a foundational pillar of modern banking practice. It is not confined to customer onboarding but extends throughout the lifecycle of the banking relationship. For financial institutions, due diligence operates at several levels:

1. Customer Due Diligence (CDD)

Banks are required to verify customer identity, beneficial ownership, source of funds, and risk profile. This obligation is reinforced by AML/CFT laws and is critical in preventing fraud, money laundering, and terrorist financing.

1. Transactional Due Diligence

Banks must monitor transactions for consistency with account mandates and customer profiles. High-value or unusual transactions demand enhanced scrutiny, including call-backs, dual authorization, and escalation where necessary.

1. Institutional Due Diligence

Banks must implement robust internal governance structures, including segregation of duties, audit trails, staff supervision, and compliance monitoring. Weaknesses at this level expose institutions to operational and reputational risk.

Courts have increasingly treated failure of due diligence not as a mere regulatory lapse but as a legal breach capable of grounding liability. Justice A. Mabeya in Lim & another v Diamond Trust Bank Kenya Limited & 7 others [2025] KEHC illustrated the consequences of deficient due diligence. In that case, the bank processed premature liquidation of fixed deposits and transfererd to third parties without proper authority. Evidence revealed failures in mandate verification, call-back procedures, and internal oversight, coupled with collusion by bank staff.

The court held that the bank breached both its contractual and fiduciary like duties to the customer. Significantly, it rejected the argument that reliance on apparently regular instructions absolved the bank from liability. Instead, the court emphasized that due diligence requires active verification and vigilance, especially where large sums and fixed deposit instruments are involved. The judgment confirms that banks bear primary responsibility for losses arising from internal breakdowns, even where fraud is sophisticated or concealed.

A key contribution of the Lim decision is its clarification of risk allocation. The court affirmed that customers are entitled to assume that banks will adhere to their own safeguards and industry standards. Once a customer demonstrates lack of authority and resultant loss, the burden shifts to the bank to justify the impugned transactions.

This approach reflects a broader policy objective: placing risk on the party best positioned to prevent harm. In banking transactions, that party is ordinarily the bank, given its control over systems, staff, and compliance mechanisms.

The court also applied restitutionary principles to order recovery of funds from third parties who could not demonstrate bona fide receipt for value. While this offers banks a secondary avenue of recovery, it does not dilute the bank’s primary obligation to restore the customer’s funds.

The decision thus reinforces the principle that unjust enrichment has no place in banking transactions tainted by fraud or procedural failure.

Implications for Financial Institutions

The Lim case underscores the need for financial institutions to treat due diligence as a substantive legal obligation rather than a box-ticking exercise. Banks must continuously review and strengthen internal controls, staff accountability, and transaction monitoring systems.

For legal practitioners and compliance officers, the case provides authoritative support for claims grounded in breach of duty, negligence, and restitution, and signals heightened judicial scrutiny of banking practices.

Conclusion

Banking and finance law in Kenya continues to evolve in response to increasing commercial complexity, technological change, and heightened regulatory scrutiny. The courts have made it clear that the duties owed by banks extend beyond the mechanical execution of customer instructions to encompass due diligence, vigilance, and institutional responsibility. For regulators, these decisions reinforce the importance of robust compliance and internal governance. For banks, they underscore the legal and financial consequences of procedural lapses and system failures. For customers and businesses, they affirm the right to rely on the integrity of banking systems and the availability of effective legal remedies where that trust is breached. As Kenyan jurisprudence continues to develop, a proactive approach to compliance, risk management, and dispute resolution remains essential to maintaining confidence in the banking system.

ESK Advocates LLP advises banks, financial institutions, and businesses on all aspects of banking and finance law in Kenya, with particular focus on due diligence, regulatory compliance, and banking disputes. Whether addressing potential liability exposure, responding to suspected fraud, or enforcing customer rights, ESK Advocates LLP delivers strategic legal advice grounded in Kenyan law, regulatory expectations, and emerging judicial trends.