Recently, the High Court of Tanzania at Mwanza delivered its judgment in a Land Case No. 47 of 2023. The case concerned the legality of the sale by public tender of mortgaged properties following the Plaintiffs’ default on a loan facility obtained from a Bank. The Plaintiffs challenged the sale, principally on the grounds that the property was sold below its forced-sale value and that the bank had failed to properly exercise its power of sale.

Background
The Plaintiffs had obtained a TZS 670 million loan facility from a Bank, secured by the suit property. The facility was subsequently restructured. The property had previously been valued in 2012 at TZS 1.703 billion, with a forced-sale value of TZS 751 million. After the Plaintiffs defaulted, the Bank proceeded to realize the security. In October 2021, the valuation placed the property’s market value at TZS 870 million and its forced-sale value at TZS 650 million. The property was subsequently advertised and sold through public tender for TZS 600 million, leaving an alleged outstanding loan balance of approximately TZS 276.4 million. The Plaintiffs consequently instituted the suit seeking, among other reliefs, cancellation of the sale, a declaration of ownership, damages, and an injunction against transfer of the property. The Bank counterclaimed for the outstanding balance.

Arguments raised by Parties
On the one hand, the Plaintiffs argued that the sale was unlawful because the Bank proceeded with the realization of the security while they were negotiating with the Bank and prospective purchasers, sold the property below its forced-sale value, and failed to properly advertise the tender. They relied on the October 2021 valuation showing a forced-sale value of TZS 650 million against the sale price of TZS 600 million and challenged the valuation and advertisement process. On the other hand, the Defendants denied the allegations, maintaining that the Plaintiffs had defaulted, the requisite notices had been issued, and the Bank was contractually entitled to proceed with recovery. Further, they contended that the property was properly valued and publicly advertised, with the third Defendant emerging as the highest bidder. Also, the Defendants maintained that TZS 276.4 million remained outstanding after the sale and counterclaimed for that amount. The third Defendant argued that he was a bona fide purchaser who had participated openly in the tender, paid the purchase price, and had no involvement in or knowledge of any alleged wrongdoing.

Decision of the Court
The Court dismissed the Plaintiffs’ suit, finding that they had failed to prove that the Bank had agreed to suspend or defer the sale. The Court further held that the fact that the properties were sold below the forced-sale value did not, by itself, make the sale unlawful, particularly as the Plaintiffs had not provided sufficient evidence of the best reasonably obtainable market price. Also, the Court found that the tender had been properly advertised and that there was no evidence of collusion, exclusion of bidders, or suppression of competition. The third Defendant was consequently held to be a bona fide purchaser for value and in good faith. However, the Bank’s counterclaim for the outstanding loan balance was also dismissed because the Bank failed to sufficiently prove the precise amount claimed through supporting loan and transaction records. Accordingly, the main suit and counterclaim were dismissed, with the third Defendant awarded costs against the Plaintiffs.

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