1. Judgment in this matter was delivered on 17/12/2019 by Okwany J whereby she directed that a full account and reconciliation of the bank statements be undertaken to establish whether the plaintiff was indeed indebted to the defendant bank.
2. To facilitate this process, the court ordered the appointment of an independent accountant or auditor to reconcile the accounts. However, when the parties could not agree on the choice of auditor, the court referred the matter to Court-Annexed Mediation.
3. Accordingly, Rev. Cllr. CPA. CPM Lawrence K. Kwiriga was appointed as the Mediator, and the matter proceeded under Mediation Case No. 523 of 2024. The mediation proceedings were conducted with the participation of the parties and their advocates.
4. From the mediation process, the parties entered into a partial settlement agreement dated 20/09/24 and signed by both parties a copy of which has been filed in Court.
5. In the partial mediation settlement agreement, the parties agreed to settle the dispute as follows:-
“i. THAT the total loan advanced by the Bank to John Joel Kanyali is Kshs.25,000,000 and the Bank overdraft received is Kshs.4,132,287.
ii. THAT the total rent paid to John Joel Kanyali up to August 2024, pursuant to the deed of Rental Assignment dated July 16, 2012 stands at Kshs.40,959,146.72.
iii. THAT the total amount that the Bank ought to have received towards repayment of the loan amount in clause 1, cumulative of interest, stands at Kshs 51,573,638.02.
iv. THAT the amount due to the Bank, considering the bank overdraft in clause 1, and the amount withdrawn by John Joel Kanyali (Kshs.1,235,575) stands at Kshs 15,982,353.30.
We, the undersigned parties in this matter, have agreed to refer the following issues back to the court for determination:
v. THAT the outstanding amount of Kshs.15,982,353.30 in clause 4 is referred back to court to make a determination on how it will be settled.”
6. From the above, the only issue for determination before this court is how the agreed-upon outstanding amount will be settled. To this end, the plaintiff filed submissions dated 16/10/2024, while the defendant filed submissions dated 14/11/2024.
7. The plaintiff submitted that no further interest ought to be charged on the outstanding debt to be recovered by the defendant arguing that it would be unlawful for the defendant to be allowed to charge further interest as this would be in contravention of the in duplum rule. The plaintiff submitted that the amount agreed to be recovered is already more than twice the original loan of Kshs.25,000,000/= and the original overdraft of Kshs.1,800,000/=.
8. On its part, the defendant submitted that the prayer by the plaintiff that the bank should not levy further interest and should constrain itself to the amounts from the rents pursuant to the deed of rental assignment, seeks to amend the agreement between the parties through a court order. The defendant asserted that the court cannot rewrite the terms of a contract.
9. The first issue for determination is whether levying further interest on the agreed outstanding amount would violate the in duplum rule.
10. As per the partial settlement agreement, the parties agreed that the amount due to the defendant, having considered the bank overdraft and the amount withdrawn by the plaintiff (Kshs.1,235,575) to be Kshs.15,982,353.30.
11. It is common ground that the original loan advanced to the plaintiff was Kshs.25,000,000 and the bank overdraft received was Kshs.4,132,287. The plaintiff further withdrew the sum of Kshs.1,235,575.
12. Under paragraph 3 of the settlement agreement, the total amount that the bank ought to have received towards repayment of the loan amount, cumulative of interest, stood at Kshs.51,573,638.02. This indicates that interest had already been levied on the loan amount.
13. Pursuant to the Deed of Rental Assignment, the total amount of rent recovered by the defendant bank was Kshs. 40,959,146/72. This amount subtracted from the expected recovery by the defendant worked out as follows: 51,573,638/02 - 40,959,146/72 = Kshs. 10,614,491/30. The plaintiff’s withdrawal of Kshs. 1,235,575/= added to the above stated amount came to : Kshs. 10,614,491/30 + 1,235,575/= Kshs. 11,850,066.30/= This when added to the overdraft facility of Ksh. 4,132,287/= made a total outstanding balance of Kshs. 15,982,353/30 as stipulated in the settlement agreement.
14. From the foregoing, it is evident that the principal sum of the loan advanced to the plaintiff by the defendant was Kshs. 25,000,000. Under Section 44A of the Banking Act, the amount of interest recoverable on non-performing loans is limited, the total recoverable sum should not exceed double the principal amount i.e. Kshs. 50,000,000, pursuant to the in duplum rule. The interest accumulation must cease once the unpaid interest equals the outstanding principal.
15. The in duplum rule was aptly discussed in the case of Mugure & 2 others versus Higher Education Loans Board (Petition E002 of 2021) [2022] eKLR where Mabeya J held inter alia that;-
" the application of the In Duplum Rule to the loans borrowed by the Petitioners is not discretionary by the Respondent but as a matter of right and law,... A declaration hereby issues that the Respondent is not entitled to recover from the petitioners or its loanees an amount exceeding double the amount advanced in contravention of the In Duplum Rule."
16. In this case, the original loan amount was Kshs. 25,000,000. Therefore, in the event of default, the total amount recoverable, comprising both principal and interest, should not exceed Kshs. 50,000,000. However, according to the defendant’s own calculations, the plaintiff was required to repay a total of Kshs. 51,573,638.02, which surpasses the statutory cap set by Section 44A of the Banking Act.
17. Be that as it may, the parties agreed in the settlement agreement that the sum of Kshs. 51,573,638.02 was due. Consequently, I am of the view that no further interest should be levied on the outstanding balance, as doing so would contravene the legal limit and further inflate the charge.
18. The second issue for determination is how the outstanding amount of Kshs.15,982,353.30 ought to be settled.
19. The plaintiff prayed to have the outstanding amounts collected via the rental assignment entered into by the parties.
20. From the record, I note that the loan advanced to the plaintiff was pursuant to various letters of offer, a charge, further charge and a second further charge over property identified as Kwale/Diani Beach/Block 605.
21. It is a settled principle of law that a chargee has a right to exercise any of the remedies set out in the charge documents and the Land Act upon default by the borrower in repaying the loan. This was emphasized in the case of Isiye & 2 others v African Banking Corporation Ltd [2024] KEHC 158 (KLR) where it was held:-
“It is common knowledge and sense that when one borrows money from another, that money will be paid back at a certain agreed time and terms. In default, the lender has remedies in law and this court cannot cripple the powers of the lenders in favour of borrowers who are unable to repay the loans advanced to them. What this court would however, expect of the lenders is that they follow the law and procedure for recovery of the loan facility as stipulated in law.”
22. I concur that the above holding captures the correct legal position. Consequently, this court cannot bar the bank as a chargee from exercising the remedies stipulated under the law in order to recover defaulted amounts.
23. Accordingly, I find that the defendant is not strictly limited to realizing the outstanding amount through the rental assignment method only.
24. The upshot of the foregoing analysis is that the defendant is barred from imposing additional interest on the agreed outstanding amount of Kshs.15,982,353.30 as this will be in violation of the in duplum rule. However, the bank may exercise any of the methods under the Land Act in order to realize the agreed outstanding amount.
25. The application having only partially succeeded, I direct that each party to bear their own costs.
26. It is so ordered.
SIGNED, DATED, and DELIVERED IN VIRTUAL COURT THIS
29TH DAY OF MAY, 2025
ADO MOSES
JUDGE
In the presence of:-
C/A…………………..Moses
Ongocho & Kopere………for the Plaintiff
Mwago …………………….for Defendant
2. To facilitate this process, the court ordered the appointment of an independent accountant or auditor to reconcile the accounts. However, when the parties could not agree on the choice of auditor, the court referred the matter to Court-Annexed Mediation.
3. Accordingly, Rev. Cllr. CPA. CPM Lawrence K. Kwiriga was appointed as the Mediator, and the matter proceeded under Mediation Case No. 523 of 2024. The mediation proceedings were conducted with the participation of the parties and their advocates.
4. From the mediation process, the parties entered into a partial settlement agreement dated 20/09/24 and signed by both parties a copy of which has been filed in Court.
5. In the partial mediation settlement agreement, the parties agreed to settle the dispute as follows:-
“i. THAT the total loan advanced by the Bank to John Joel Kanyali is Kshs.25,000,000 and the Bank overdraft received is Kshs.4,132,287.
ii. THAT the total rent paid to John Joel Kanyali up to August 2024, pursuant to the deed of Rental Assignment dated July 16, 2012 stands at Kshs.40,959,146.72.
iii. THAT the total amount that the Bank ought to have received towards repayment of the loan amount in clause 1, cumulative of interest, stands at Kshs 51,573,638.02.
iv. THAT the amount due to the Bank, considering the bank overdraft in clause 1, and the amount withdrawn by John Joel Kanyali (Kshs.1,235,575) stands at Kshs 15,982,353.30.
We, the undersigned parties in this matter, have agreed to refer the following issues back to the court for determination:
v. THAT the outstanding amount of Kshs.15,982,353.30 in clause 4 is referred back to court to make a determination on how it will be settled.”
6. From the above, the only issue for determination before this court is how the agreed-upon outstanding amount will be settled. To this end, the plaintiff filed submissions dated 16/10/2024, while the defendant filed submissions dated 14/11/2024.
7. The plaintiff submitted that no further interest ought to be charged on the outstanding debt to be recovered by the defendant arguing that it would be unlawful for the defendant to be allowed to charge further interest as this would be in contravention of the in duplum rule. The plaintiff submitted that the amount agreed to be recovered is already more than twice the original loan of Kshs.25,000,000/= and the original overdraft of Kshs.1,800,000/=.
8. On its part, the defendant submitted that the prayer by the plaintiff that the bank should not levy further interest and should constrain itself to the amounts from the rents pursuant to the deed of rental assignment, seeks to amend the agreement between the parties through a court order. The defendant asserted that the court cannot rewrite the terms of a contract.
9. The first issue for determination is whether levying further interest on the agreed outstanding amount would violate the in duplum rule.
10. As per the partial settlement agreement, the parties agreed that the amount due to the defendant, having considered the bank overdraft and the amount withdrawn by the plaintiff (Kshs.1,235,575) to be Kshs.15,982,353.30.
11. It is common ground that the original loan advanced to the plaintiff was Kshs.25,000,000 and the bank overdraft received was Kshs.4,132,287. The plaintiff further withdrew the sum of Kshs.1,235,575.
12. Under paragraph 3 of the settlement agreement, the total amount that the bank ought to have received towards repayment of the loan amount, cumulative of interest, stood at Kshs.51,573,638.02. This indicates that interest had already been levied on the loan amount.
13. Pursuant to the Deed of Rental Assignment, the total amount of rent recovered by the defendant bank was Kshs. 40,959,146/72. This amount subtracted from the expected recovery by the defendant worked out as follows: 51,573,638/02 - 40,959,146/72 = Kshs. 10,614,491/30. The plaintiff’s withdrawal of Kshs. 1,235,575/= added to the above stated amount came to : Kshs. 10,614,491/30 + 1,235,575/= Kshs. 11,850,066.30/= This when added to the overdraft facility of Ksh. 4,132,287/= made a total outstanding balance of Kshs. 15,982,353/30 as stipulated in the settlement agreement.
14. From the foregoing, it is evident that the principal sum of the loan advanced to the plaintiff by the defendant was Kshs. 25,000,000. Under Section 44A of the Banking Act, the amount of interest recoverable on non-performing loans is limited, the total recoverable sum should not exceed double the principal amount i.e. Kshs. 50,000,000, pursuant to the in duplum rule. The interest accumulation must cease once the unpaid interest equals the outstanding principal.
15. The in duplum rule was aptly discussed in the case of Mugure & 2 others versus Higher Education Loans Board (Petition E002 of 2021) [2022] eKLR where Mabeya J held inter alia that;-
" the application of the In Duplum Rule to the loans borrowed by the Petitioners is not discretionary by the Respondent but as a matter of right and law,... A declaration hereby issues that the Respondent is not entitled to recover from the petitioners or its loanees an amount exceeding double the amount advanced in contravention of the In Duplum Rule."
16. In this case, the original loan amount was Kshs. 25,000,000. Therefore, in the event of default, the total amount recoverable, comprising both principal and interest, should not exceed Kshs. 50,000,000. However, according to the defendant’s own calculations, the plaintiff was required to repay a total of Kshs. 51,573,638.02, which surpasses the statutory cap set by Section 44A of the Banking Act.
17. Be that as it may, the parties agreed in the settlement agreement that the sum of Kshs. 51,573,638.02 was due. Consequently, I am of the view that no further interest should be levied on the outstanding balance, as doing so would contravene the legal limit and further inflate the charge.
18. The second issue for determination is how the outstanding amount of Kshs.15,982,353.30 ought to be settled.
19. The plaintiff prayed to have the outstanding amounts collected via the rental assignment entered into by the parties.
20. From the record, I note that the loan advanced to the plaintiff was pursuant to various letters of offer, a charge, further charge and a second further charge over property identified as Kwale/Diani Beach/Block 605.
21. It is a settled principle of law that a chargee has a right to exercise any of the remedies set out in the charge documents and the Land Act upon default by the borrower in repaying the loan. This was emphasized in the case of Isiye & 2 others v African Banking Corporation Ltd [2024] KEHC 158 (KLR) where it was held:-
“It is common knowledge and sense that when one borrows money from another, that money will be paid back at a certain agreed time and terms. In default, the lender has remedies in law and this court cannot cripple the powers of the lenders in favour of borrowers who are unable to repay the loans advanced to them. What this court would however, expect of the lenders is that they follow the law and procedure for recovery of the loan facility as stipulated in law.”
22. I concur that the above holding captures the correct legal position. Consequently, this court cannot bar the bank as a chargee from exercising the remedies stipulated under the law in order to recover defaulted amounts.
23. Accordingly, I find that the defendant is not strictly limited to realizing the outstanding amount through the rental assignment method only.
24. The upshot of the foregoing analysis is that the defendant is barred from imposing additional interest on the agreed outstanding amount of Kshs.15,982,353.30 as this will be in violation of the in duplum rule. However, the bank may exercise any of the methods under the Land Act in order to realize the agreed outstanding amount.
25. The application having only partially succeeded, I direct that each party to bear their own costs.
26. It is so ordered.
SIGNED, DATED, and DELIVERED IN VIRTUAL COURT THIS
29TH DAY OF MAY, 2025
ADO MOSES
JUDGE
In the presence of:-
C/A…………………..Moses
Ongocho & Kopere………for the Plaintiff
Mwago …………………….for Defendant