Introduction
1. This is an appeal from the Judgment in the Nairobi Small Claims Court (SCCCOMM) case No. E1026 of 2022 delivered on 7th February 2023 in which the trial court partially allowed the Respondent’s claim against the Appellant.
2. The background of the matter is that the Appellant advanced a loan of Kshs. 300,000/—to the Respondent against the Respondent’s motor vehicle registration No. KAV 004V as security for the loan. The Respondent defaulted in making the payments, and the subject motor vehicle was repossessed by the Appellant on 19th January 2022.
3. Aggrieved by the Appellant’s action, the Respondent on 5th May 2022 instituted a Claim in the Nairobi SCCC seeking a return of the lorry worth Kshs. 750,000 as well as compensation for the loss of monthly earnings, totaling to a sum of Kshs. 140,000/-.
4. In defence, the Appellant stated that the subject motor vehicle was lawfully repossessed, the Respondent having failed to service the loan, and that it had been sold for Kshs. 550,000/—, and that a sum of Kshs. 548,000/—was still outstanding under the loan agreement after applying the sale proceeds of the subject motor vehicle.
5. On 7th February 2023, the lower court rendered its judgment on the matter and partially allowed the Respondent’s Claim. The court found that the Appellant did not provide any evidence that the subject motor vehicle was sold and the price for which it was sold.
6. The Court therefore concluded that the Respondent was entitled to a sum of Kshs. 333,000/-, being the difference between the value of the motor vehicle (Kshs. 750,000) and the amount of the principal loan that was outstanding as at the time the vehicle was repossessed (Kshs. 208,5000/=) plus interest, subject to the in duplum rule under section 44A of the Banking Act.
The Appeal
7. Aggrieved by the trial court’s Judgment, the Appellant lodged this appeal vide its Memorandum of Appeal dated 2nd March 2023 and raised four (4) grounds of appeal that; -
i. The Learned Magistrate erred in law by holding that the Appellant was a financial institution under the Banking Act and bound by the in duplum rule as provided under Sec 44A of the Banking Act 2016 thus limiting the extent of its recovery.
ii. The Learned Magistrate erred in law by limiting the Appellant’s rights to fair hearing pursuant to Article 50(1) of the Constitution, 2010 by:
a. Granting relief not sought by the Respondent in his pleadings;
b. Determining issues not raised by parties in their pleadings or during the trial hence arriving at the wrong decision of refund of Kshs.330,000/= in blatant disregard of the Appellant’s right to be heard; and
c. Shifting the burden of proof upon the Appellant to disprove the Respondent’s case.
iii. The Learned Magistrate erred in law by disregarding admissions by the Respondent in his pleadings and during the trial that the vehicle had been sold prior to judgment;
iv. The Learned Magistrate erred by awarding the Respondent costs in blatant disregard of the Respondent’s admission of breach of the contract between themselves.
8. The appeal was canvased by way of written submissions. The Appellant filed two sets of submissions, one dated 16th May 2024 and the other dated 6th August 2024. The Respondent’s submissions are dated 25th July 2024.
Appellant’s Submissions
9. In its submissions, the Appellant argued that the trial court erred in law by holding that the Appellant was a financial institution under the Banking Act and bound by the in duplum rule as provided under Sec 44A of the Banking Act 2016 thus limiting the extent of its recovery.
10. According to the Appellant, the parties had agreed on the interest rate applicable to the loan, and that applying the rate of 5% per month and a default penalty of 3% per month, the amount outstanding as of the date of default was Kshs. 661,717.61 and not Kshs. 417,000/- as held by the trial court.
11. The Appellant asserted that it does not qualify as a financial institution under Section 2 of the Banking Act since it is not a bank, a mortgage finance company, or a deposit taking institution, and neither had it been gazetted as a financial institution. Accordingly, the Appellant maintained that the rate of interest to be charged is to be governed by the letter of offer, and not Section 44A of the Banking Act. The Appellant relied on the case of Momentum Credit Limited vs Kabuiya (Civil Appeal E035 of 2022) [2022] eKLR in support of this argument.
12. Citing among others, the decision in the Court of Appeal in the case of National Bank of Kenya Ltd V Pipe Plastic Samkolit (K) Ltd and Another (2002) EA 503, the Appellant submitted that it is not for the court to rewrite a contract between the parties. That the duty of the court is only limited to enforcing parties’ mutual covenants.
13. Secondly, the Appellant submitted that the trial court in its judgment, granted orders which were not sought by the Respondent in his claim before the trial court, thereby breaching the Appellant’s constitutional right to be heard as guaranteed under Article 50 of the Constitution.
14. According to the Appellant, the Respondent in his statement of claim dated 5th May 2022 sought for the return of lorry worth Kshs. 750,000/- and compensation for loss of earnings in the sum of Kshs. 140,000/-. However, the trial court, contrary to the law, entered judgment against the Appellant for the refund of Kshs. 333,000/-.
15. The Appellant maintained that the prayer for the refund of Kshs. 333,000/- ordered by the trial court was not pleaded by the Respondent in his Statement of Claim and therefore the award of the same was in breach of the Appellant’s rights to a fair hearing.
16. Citing the case of Independent Electoral and Boundaries Commission & another v Stephen Mutinda Mule & 3 others [2014] eKLR the Appellant submitted that the trial court ought to have rendered its decision strictly on the issues raised by the Claimant in his Statement of Claim.
17. As an alternative argument, the Appellant submitted that in any event, the Respondent did not produce any evidence in proof of the value of the subject motor vehicle. According to the Appellant, the trial court erred in shifting the burden of proof on the Appellant to disapprove the allegations of the Respondent on the value of the motor vehicle, contrary to the well-laid principles in evidence law which places the burden of proof on the claimant.
18. The Appellant therefore urged this court to set aside the trial court’s judgment in its entirety and that the same be substituted with an order dismissing the Respondent’s Claim dated 05/05/2022 with costs.
Respondent’s Submissions
19. On his part, the Respondent supported the trial court’s judgment and urged this court to sustain the same. According to the Respondent, there was no dispute on the value of the subject motor vehicle since the Appellant, in the testimony before the trial court testified that the vehicle had been valued at between Kshs. 600,000/= to 750,000/=. Further, that the Proclamation notices by the Appellant’s agents, Charlton Auctioneers, valued the same vehicle at Kshs. 750,000/= in its proclamation notice.
20. It was further the Respondent’s submissions that as of the date when the subject motor vehicle was seized (19th January 2022), the amount of the loan then outstanding, as stated in the proclamation notice, was Kshs. 338,992. According to the Respondent, to the extent that the Appellant did not adduce any evidence on how much the vehicle was auctioned at, the Appellant should not be in law disown the figures given by its agents, Charlton Auctioneers, as to the value of the subject motor vehicle, as well as the loan amount outstanding as at the date of the proclamation.
21. According to the Respondent, any further interest on the loan ought to have stopped running immediately after the repossession of the subject motor vehicle (collateral) by the Appellant.
22. The Respondent maintained that contrary to the Appellant’s assertions, the burden of proving that a valuation was undertaken on the subject vehicle prior to the auction sale was on the Appellant. It is equally the Respondent’s position that it is the burden of the Appellant to prove that the sale complied with the law as to the date of the auction, and the amount fetched from the sale.
23. The Respondent therefore urged this court to dismiss the appeal with costs.
Analysis and determination
24. This is an appeal from the Small Claims Court. Section 38 of the Small Claims Court Act clothes this court with Appellate jurisdiction on matters arising from that court in the following terms; -
“38. (1). A person aggrieved by the decision or an order of the Court may appeal against that decision or order to the High Court on matters of law.
(2) An appeal from any decision or order referred to in subsection (1) shall be final.”
25. It therefore follows that appeals originating from the Small Claims Court to this court can only be on the points of law in terms of Section 38(1) of the Small Claims Act. Consequently, this court cannot, in appeals emanating from the Small Claims Court, entertain an invitation to interfere with the trial court's factual findings.
26. The duty and jurisdiction of this court when dealing with an appeal from the Small Claims Court is comparable to that of the Court of Appeal when dealing with a matter on a second appeal. In Kenya Breweries Ltd v Godfrey Odoyo [2010] eKLR the Court of Appeal, in distinguishing between issues of law and matters of fact stated as follows: -
“First, this is a second appeal. In a first appeal, the appellate court is by law enjoined to revisit the evidence that was before the trial court and analyze it, evaluate it, and come to its own independent conclusion. In other words, a first appeal is by way of a retrial and facts must be revisited and analyzed a fresh, - see Selle and Another vs. Associated Motor Boat Company Ltd and Others (1968) EA 123. In a second appeal however, such as this one before us, we have to resist the temptation of delving into matters of facts. This Court, on second appeal, confines itself to matters of law unless it is shown that the two courts below considered matters, they should not have considered or failed to consider matters they should have considered or looking at the entire decision, it is perverse.”
27. I have considered the grounds of appeal as presented by the Appellant. I note that three (3) major complaints by the Appellant against the decision of the trial court are that the court erred in law in holding that the Appellant was governed by Section 44A of the Banking Act which incorporates in duplum rule; that the Respondent did not adduce any evidence in support of his claim for the value of the subject motor vehicle at the time of the sale by the Appellant; and that the trial court issued orders which were not pleaded by the Respondent in his statement of claim.
Whether Section 44A of the Banking Act (in duplum Rule) applies to the Appellant
28. On in duplum Rule, Section 44A of the Banking Act provides as follows; -
“44A.Limit on interest recovered on defaulted loans.
1. An institution shall be limited in what it may recover from a debtor with respect to a non-performing loan to the maximum amount under subsection (2).
2. The maximum amount referred to in subsection (1) is the sum of the following—
a. the principal owing when the loan becomes non-performing;
b. interest, in accordance with the contract between the debtor and the institution, not exceeding the principal owing when the loan becomes non-performing; and
c. expenses incurred in the recovery of any amounts owed by the debtor. [Emphasis added]
29. The term ‘institution’ is defined under Section 2 of the Banking Act to mean “a bank or financial institution or mortgage finance company. On the other hand, the term ‘’financial institution’’ is defined as a company other than a bank, which carries on or proposes to carry on financial business and includes any other company which the minister may by notice on the gazette, declare to be a financial institution for the purposes of the Act.
30. Further, the term “financial business’’ is also defined under the Act to mean; –
“a. The accepting from members of the public of money on deposit repayable on demand at the expiry of a fixed period or after notice, and
b. the employing of money held on deposit or any part of the money by lending, investment, or in any other manner for the account and at the risk of the person so employing the money.”
31. From the above definition, it is obvious that to fall under Section 44 of the Act, it is necessary to prove that the Appellant is either a bank or a financial institution. The converse is also true.
32. In the instant case, the Appellant has merely alleged in its memorandum of appeal and the submissions in support thereof that they are not a bank or a financial institution within the meaning of Section 44 of the Banking Act. However, no evidence has been provided by the Appellant as to the nature of their business or even the law under which it is licensed/registered to operate.
33. The allegation by the Appellant that they do not fall within the ambit of Section 44A is not backed by any evidence. At the very least, the Appellant needed to have pointed out the nature of its business, and then adduce some evidence in that regard. It cannot be left to the court to guess the true nature of the Appellant’s business, and then conclude that the Appellant does not fall within the ambit of Section 44A of the Banking Act.
34. It was the duty of the Appellant to first lay out the law under which it is registered and the nature of its business. They did not. There is nothing in the record of appeal in that regard. Accordingly, this court is unable to find in favour of the Appellant’s argument that it is not a bank or a financial institution as provided under Section 44 of the Banking Act. This ground of appeal therefore fails.
On the value of the motor vehicle
35. Regarding the Appellant’s submissions that the trial court erred in law by shifting the burden of proof as to the value of the subject vehicle from the Respondent to the Appellant, I think that the evidence on record reveals otherwise.
36. I have perused the Respondent’s Statement of Claim dated 5th May 2022 and note that the Respondent pleaded for the return of his lorry. The value of the lorry was stated in the Statement of Claim to be Kshs. 750,000/-. It is also on record that the Appellant’s agent, Charlton Auctioneers, stated in the proclamation notice that the value of the collateral motor vehicle at Kshs. 750,000/= as of 19th January 2022 when the subject motor vehicle was repossessed.
37. Further, I note from the record that the Appellant in its testimony before the trial court stated that the value of the subject motor vehicle was between 600,000/- to 750,000/-.
38. Section 61 of the Evidence Act, Cap. 80 (Laws of Kenya) is clear that in civil proceedings, no fact which is admitted or deemed to have been admitted by the other party needs to be proved. The Section provides that; -
“61. Facts admitted in civil proceedings
No fact need be proved No fact need be proved in any civil proceeding which the parties thereto or their agents agree to admit at the hearing, or which before the hearing they agree, by writing under their hands, to admit, or which by any rule of pleading in force at the time they are deemed to have admitted by their pleadings:
Provided that the court may in its discretion require the facts admitted to be proved otherwise than by such admissions.”
39. In view of the above, I agree with the Respondent’s submissions that the value of the vehicle was not in dispute, the Appellant having admitted the value as pleaded by the Respondent. The argument by the Appellant that the Respondent needed to prove that the value of the motor vehicle was not affected by depreciation is equally not meritorious.
Whether the trial court granted prayers not sought
40. Regarding the Appellant’s argument that the trial court granted orders which had not been sought by the Claimant in his statement of claim, I find this argument equally to be without merit.
41. From the record, it is clear that in his Statement of Claim dated 5th May 2022, the Respondent herein sought for the return of the subject motor vehicle and gave its value at Kshs. 750,000/-. The Respondent also sought for compensation for loss of earnings in the sum of Kshs. 140,000/-. I also note that the trial court entered judgment against the Appellant for the refund of Kshs. 333,000/-.
42. From my review of evidence on record and the proceedings, I note that the Appellant testified that the subject motor vehicle had been sold and was therefore not available to be returned to the Respondent.
43. Taking into account the testimony by the Appellant that the motor vehicle was not available to be returned to the Respondent, I find that the trial court was in law entitled to order that the proceeds of the sale (less any outstanding debt owed to the Appellant as at the date of the proclamation), be returned to the Respondent.
44. The amount of Kshs. 333,000/- ordered by the trial court to be returned to the Respondent by the Appellant, in my view reflected the net value of the subject motor vehicle as of the date of proclamation.
45. For the reasons set out above, the appeal herein fails and the same is hereby dismissed.
46. No orders as to costs since the Respondent did not participate in this appeal.
47. It is so ordered.
SIGNED DATED and DELIVERED IN VIRTUAL COURT
THIS 16TH DAY OF DECEMBER 2024
ADO MOSES
JUDGE
In the presence of:-
Moses – Court Assistant
N/A…………for the Appellant.
Miss Wafula………… for the Respondent.