1. This is an appeal arising from the decision of the Small Claims Court in the Nairobi SCCCOMM No. E254 OF 2024 delivered on 02/08/2024, in which the Hon. Adjudicator dismissed the Appellant’s (then a Claimant) claim for Kshs. 71,820/ against the Respondent herein.
2. The background of the dispute is that the Appellant instituted a suit against the Respondent in the Small Claims Court seeking the recovery of a debt worth Kshs. 71,820/- arising out of money lent to the Respondent by the Claimant through a loan agreement dated 25/8/2022.
3. Upon consideration of the claim and the Respondent’s opposition to it, the Hon. Adjudicator dismissed the claim, stating that the Appellant had failed to prove its case on a balance of probabilities. The lower court opined that the Respondent having paid an amount of Kshs. 235,200, where only a sum of Kshs. 68,250 was disbursed, the Respondent had paid more than a fair share of the debt owed to the Appellant.
4. Aggrieved by the Hon. Adjudicator’s decision, the Appellant filed an appeal to this Court against the whole of the judgment, raising a total of 16 grounds of appeal. Key among them being that: -
i. The learned Adjudicator erred both in law and fact in reaching a conclusion that the Appellant had not proven its case on a balance of probabilities.
ii. The learned Adjudicator completely misapprehended and failed to properly evaluate the established law and the principles thereunder, the filed pleadings, exchanged written submissions, and unchallenged evidence on record on the contractual relationship between the parties as evidenced by the terms of the Loan Agreement dated 25th August 2022 between the parties.
iii. The learned Adjudicator erred in fact by making conclusions on evidence based on pleadings which are not otherwise supported by pleadings or any concrete evidence.
iv. The learned Adjudicator erred both in law and fact in contradicting himself on uncontroverted evidence, thus arriving at an erroneous decision.
5. Based on the foregoing grounds, the Appellant prayed to have its appeal allowed and the judgment of the subordinate court set aside and substituted with a judgment allowing the Appellant’s claim in the sum of Kshs.71,820/-. The Appellant also prayed further for costs of this appeal and those in the subordinate court and interest at court rates from the date of filing this suit until payment in full.
6. The appeal proceeded by way of written submissions. In support of the Appeal, the Appellant filed his submissions dated 18th November 2024. The Respondent opposed the appeal and filed, among others, submissions dated 8th March 2025.
Appellant’s Submissions
7. In his submissions, the Appellant gave a background of the dispute and submitted that the lower court in reaching at its decision, erred by failing to appreciate the tenor and terms of the contractual relationship between the Appellant and the Respondent which was established by the Loan Agreement between the parties dated 25th August 2022.
8. The Appellant submitted that the Respondent willingly entered into a Loan Agreement dated 25th August 2022, read, accepted the terms of the agreement, and appended his signature on the Loan Agreement without coercion, which makes the Respondent legally bound by the terms of the contract.
9. It was further the Appellant’s submissions that the trial court failed to appreciate that there was a breach of the loan agreement on the part of the Respondent by paying only a sum of Kshs. 81,700/= out of the Kshs. 133,000/= that was payable, thereby leaving a balance of Kshs. 51,300/=.
10. The Appellant submitted that the trial court failed to appreciate that as per the terms of the loan agreement, if the Respondent had defaulted for 8 months before the suit was instituted in the subordinate court, that as a result, the Respondent incurred a late payment penalty in the sum of Kshs. 20,520/=, hence the outstanding balance of Kshs. 71,820/= /=, which remains unpaid.
11. Finally, the Appellant submitted that the trial court erred in finding that the Appellant was bound by the in duplum rule as outlined under Section 44A of the Banking Act. The Appellant maintained that its operations are not subject to the strictures of the in-duplum rule.
12. Consequently, the Appellant urged the Court to allow the appeal with costs and set aside the lower court’s judgment.
Respondents Submissions
13. The Respondent submitted that the appeal was frivolous, lacked merit in law and fact, and failed to appreciate the importance of pleadings in legal proceedings. He claimed that the trial magistrate had not examined the issue of proof of the case, but had instead focused on whether there was a breach of contract and what remedies were available.
14. In response to allegations in the appeal suggesting bias or lack of impartiality by the trial magistrate, the Respondent argued that such claims were baseless and amounted to harassment. He emphasized that complaints about judicial officers' conduct were to be addressed through proper constitutional channels, not through an appeal.
15. The Respondent confirmed the existence of a contract dated 25/8/2022 and stated that the trial court had also acknowledged it. While the Appellant claimed that Kshs. 133,000 was owed and that only Kshs. 81,700 had been paid, the Respondent argued that he had actually paid Kshs. 145,000 in principal and Kshs. 90,200 in interest, totaling Kshs. 235,200. This, he said, exceeded the amount allegedly owed.
16. He further submitted that the Appellant never disputed his statement of defense or the loan statement filed on 11/6/2024, which the trial court accepted. The Respondent questioned the Appellant’s failure to explain how the original disbursed amount of Kshs. 70,000 had ballooned to a repayment of Kshs. 145,000 in principal.
17. In response to the appeal’s allegations about evidentiary issues, he cited legal principles that require a party alleging a fact to prove it. He contended that the Appellant failed to discharge this burden, and that the trial court rightly found that the Respondent had paid more than what was owed.
18. He emphasized that parties are bound by their pleadings and that the trial magistrate had based the decision on the issues raised in those pleadings, contrary to the Appellant’s claims.
19. He reaffirmed that the unchallenged evidence before the trial court showed an overpayment by the Respondent and concluded by opposing the appeal in its entirety, asking that it be dismissed with costs.
Analysis and determination:
20. This is an appeal from the Small Claims Court. The jurisdiction of this Court in such appeals is limited to points of law only under the provisions of section 38 of the Small Claims Court Act, which provides that: -
“38. Appeals
(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.
21. The Court of Appeal in the case of Otieno, Ragot & Company Advocates v National Bank of Kenya Limited [2020] eKLR, addressed the duty of a court considering points of law in the following terms: -
“This is a second appeal. I am alive to my duty as a second appellate court to determine matters of law only unless it is shown that the 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. (See: Stanley N. Muriithi & Another versus Bernard Munene Ithiga (2016) eKLR).”
22. A perusal of the grounds of appeal and submissions by the Appellant reveals that they are basically factual. The Appellant, in its submissions, brought in the question whether or not the Appellant’s operations are subject to the strictures of in-duplum rule as provided under Section 44A of the Banking Act.
23. I have carefully perused the trial court’s judgment of 29th June 2024 but I did not have sight of anywhere in the judgment where the Hon. Adjudicator made a finding that the Appellant is bound by the provisions of Section 44A of the Banking Act. Accordingly, this line of argument is irrelevant in the context of this appeal, and will not therefore be considered.
24. This is a dispute that is anchored on the disbursement of a loan pursuant to an agreement dated 25/8/2022. The Appellant instituted a suit against the Respondent in the Small Claims Court claiming a sum of Kshs.71,820/- being the outstanding balance from the loan it had advanced to the Respondent vide the aforementioned loan agreement. This is evidenced in the Appellant’s statement of claim produced on pages 5-7 in the record of appeal.
25. The Respondent in his defense argued that he had exceedingly honoured his contractual obligations and produced an account statement to prove this assertion.
26. The record indicates that the Respondent paid a total amount of Kshs.235,200 towards settlement of the principal loan amount and interest. The Hon. Adjudicator found that the aforementioned amount settled more than a fair share of the debt owed to the Claimant considering that only an amount of Kshs.68,250 was disbursed and Kshs.133,000 was repayable. The lower court noted that the loan agreement stipulated an interest rate of 15% per month which would amount to an astonishing annual rate of 180%, which he found to be exorbitant and unconscionable.
27. In the Court of Appeal case of Margaret Njeri Muiruri v Bank of Baroda (Kenya) Limited [2014] eKLR it was held:
“ It is not for the Court to rewrite a contract for the parties. As this Court held in National Bank of Kenya Ltd vs Pipeplastic Sankolit (K) Ltd. Civil Appeal No. 95 of 1999 …‘a Court of law cannot rewrite a contract with regard to interest as the parties are bound by the terms of their contract.’ Nevertheless, courts have never been shy to interfere with or refuse to enforce contracts which are unconscionable, unfair or oppressive due to the a procedural abuse during formation of the contract, or due to contract terms that are unreasonably favourable to one party and would preclude meaningful choice for the other party. An unconscionable contract is one that is extremely unfair. Substantive unconscionability is that which results from actual contract terms that are unduly harsh, commercially unreasonable, and grossly unfair given the existing circumstances of the case (See Black’s Law Dictionary, 9th Edition, Gardner, Ed.).”
28. In Premier Credit Limited v Sielei [2024] KEHC 10275 (KLR), the Court dealt with a similar issue on the unconscionability of contracts. It held:
“ In this case, the loan agreement attracted an annual interest rate of 30.36% and the loan of Kshs. 250,000/- would be repaid to a total amount of Kshs. 896,784/- within a period of 84 months. This amount is over three times the principal amount that was borrowed by the Respondent. I do not hesitate to find the same as grossly unfair and disturbingly punitive. Guided by the authority above on unconscionability of contracts, I am of the view that it is grossly unfair for the Appellant to levy such a punitive interest rate.
The loan agreement is thus unconscionable and on this basis, its enforcement calls for interference by the court. I therefore agree with the finding of the lower court that the interest charged by the Respondent was exorbitant and unconscionable. The Learned Adjudicator was right to subject the loan amount to 13% interest rate based on the prevailing bank interest rate at the time.”
29. In the present case, according to the statement of account produced on page 31 of the record of appeal, which was not challenged by the Appellant, the Respondent paid a total sum of Kshs.235,200/- to settle a loan disbursement of Kshs.68,250/- where only Kshs.133,000 was to be repayable. I agree with the lower court that the amount paid by the Respondent settled more than the fair share of the debt owed by the Respondent.
30. For the Appellant to claim a further sum of Kshs.71,820/- from the Respondent as outstanding amounts due from the loan is not only excessive but unconscionable as defined in the cited authorities above.
31. I am therefore of the view that the Hon. Adjudicator, having considered the evidence placed before him, made a sound judgement and I find no reason to set it aside.
32. In any event, and as indicated above, the issues raised in this appeal are mainly factual. I have evaluated the same and noted that the court exercised its discretion correctly. The Hon. Adjudicator was entitled to evaluate the evidence and come up with his own findings. It is not within the province of this Court to interfere with the factual finding s findings of the Small Claims Court.
33. In the premises, this appeal is therefore dismissed with no order as to costs awarded to the Respondent.
34. It is so ordered.
SIGNED DATED and DELIVERED IN VIRTUAL COURT THIS
19TH DAY OF JUNE 2025
ADO MOSES
JUDGE
In the presence of: -
C/A – Moses
………………………..for the Appellant
N/A….………………………....for the Respondent
2. The background of the dispute is that the Appellant instituted a suit against the Respondent in the Small Claims Court seeking the recovery of a debt worth Kshs. 71,820/- arising out of money lent to the Respondent by the Claimant through a loan agreement dated 25/8/2022.
3. Upon consideration of the claim and the Respondent’s opposition to it, the Hon. Adjudicator dismissed the claim, stating that the Appellant had failed to prove its case on a balance of probabilities. The lower court opined that the Respondent having paid an amount of Kshs. 235,200, where only a sum of Kshs. 68,250 was disbursed, the Respondent had paid more than a fair share of the debt owed to the Appellant.
4. Aggrieved by the Hon. Adjudicator’s decision, the Appellant filed an appeal to this Court against the whole of the judgment, raising a total of 16 grounds of appeal. Key among them being that: -
i. The learned Adjudicator erred both in law and fact in reaching a conclusion that the Appellant had not proven its case on a balance of probabilities.
ii. The learned Adjudicator completely misapprehended and failed to properly evaluate the established law and the principles thereunder, the filed pleadings, exchanged written submissions, and unchallenged evidence on record on the contractual relationship between the parties as evidenced by the terms of the Loan Agreement dated 25th August 2022 between the parties.
iii. The learned Adjudicator erred in fact by making conclusions on evidence based on pleadings which are not otherwise supported by pleadings or any concrete evidence.
iv. The learned Adjudicator erred both in law and fact in contradicting himself on uncontroverted evidence, thus arriving at an erroneous decision.
5. Based on the foregoing grounds, the Appellant prayed to have its appeal allowed and the judgment of the subordinate court set aside and substituted with a judgment allowing the Appellant’s claim in the sum of Kshs.71,820/-. The Appellant also prayed further for costs of this appeal and those in the subordinate court and interest at court rates from the date of filing this suit until payment in full.
6. The appeal proceeded by way of written submissions. In support of the Appeal, the Appellant filed his submissions dated 18th November 2024. The Respondent opposed the appeal and filed, among others, submissions dated 8th March 2025.
Appellant’s Submissions
7. In his submissions, the Appellant gave a background of the dispute and submitted that the lower court in reaching at its decision, erred by failing to appreciate the tenor and terms of the contractual relationship between the Appellant and the Respondent which was established by the Loan Agreement between the parties dated 25th August 2022.
8. The Appellant submitted that the Respondent willingly entered into a Loan Agreement dated 25th August 2022, read, accepted the terms of the agreement, and appended his signature on the Loan Agreement without coercion, which makes the Respondent legally bound by the terms of the contract.
9. It was further the Appellant’s submissions that the trial court failed to appreciate that there was a breach of the loan agreement on the part of the Respondent by paying only a sum of Kshs. 81,700/= out of the Kshs. 133,000/= that was payable, thereby leaving a balance of Kshs. 51,300/=.
10. The Appellant submitted that the trial court failed to appreciate that as per the terms of the loan agreement, if the Respondent had defaulted for 8 months before the suit was instituted in the subordinate court, that as a result, the Respondent incurred a late payment penalty in the sum of Kshs. 20,520/=, hence the outstanding balance of Kshs. 71,820/= /=, which remains unpaid.
11. Finally, the Appellant submitted that the trial court erred in finding that the Appellant was bound by the in duplum rule as outlined under Section 44A of the Banking Act. The Appellant maintained that its operations are not subject to the strictures of the in-duplum rule.
12. Consequently, the Appellant urged the Court to allow the appeal with costs and set aside the lower court’s judgment.
Respondents Submissions
13. The Respondent submitted that the appeal was frivolous, lacked merit in law and fact, and failed to appreciate the importance of pleadings in legal proceedings. He claimed that the trial magistrate had not examined the issue of proof of the case, but had instead focused on whether there was a breach of contract and what remedies were available.
14. In response to allegations in the appeal suggesting bias or lack of impartiality by the trial magistrate, the Respondent argued that such claims were baseless and amounted to harassment. He emphasized that complaints about judicial officers' conduct were to be addressed through proper constitutional channels, not through an appeal.
15. The Respondent confirmed the existence of a contract dated 25/8/2022 and stated that the trial court had also acknowledged it. While the Appellant claimed that Kshs. 133,000 was owed and that only Kshs. 81,700 had been paid, the Respondent argued that he had actually paid Kshs. 145,000 in principal and Kshs. 90,200 in interest, totaling Kshs. 235,200. This, he said, exceeded the amount allegedly owed.
16. He further submitted that the Appellant never disputed his statement of defense or the loan statement filed on 11/6/2024, which the trial court accepted. The Respondent questioned the Appellant’s failure to explain how the original disbursed amount of Kshs. 70,000 had ballooned to a repayment of Kshs. 145,000 in principal.
17. In response to the appeal’s allegations about evidentiary issues, he cited legal principles that require a party alleging a fact to prove it. He contended that the Appellant failed to discharge this burden, and that the trial court rightly found that the Respondent had paid more than what was owed.
18. He emphasized that parties are bound by their pleadings and that the trial magistrate had based the decision on the issues raised in those pleadings, contrary to the Appellant’s claims.
19. He reaffirmed that the unchallenged evidence before the trial court showed an overpayment by the Respondent and concluded by opposing the appeal in its entirety, asking that it be dismissed with costs.
Analysis and determination:
20. This is an appeal from the Small Claims Court. The jurisdiction of this Court in such appeals is limited to points of law only under the provisions of section 38 of the Small Claims Court Act, which provides that: -
“38. Appeals
(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.
21. The Court of Appeal in the case of Otieno, Ragot & Company Advocates v National Bank of Kenya Limited [2020] eKLR, addressed the duty of a court considering points of law in the following terms: -
“This is a second appeal. I am alive to my duty as a second appellate court to determine matters of law only unless it is shown that the 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. (See: Stanley N. Muriithi & Another versus Bernard Munene Ithiga (2016) eKLR).”
22. A perusal of the grounds of appeal and submissions by the Appellant reveals that they are basically factual. The Appellant, in its submissions, brought in the question whether or not the Appellant’s operations are subject to the strictures of in-duplum rule as provided under Section 44A of the Banking Act.
23. I have carefully perused the trial court’s judgment of 29th June 2024 but I did not have sight of anywhere in the judgment where the Hon. Adjudicator made a finding that the Appellant is bound by the provisions of Section 44A of the Banking Act. Accordingly, this line of argument is irrelevant in the context of this appeal, and will not therefore be considered.
24. This is a dispute that is anchored on the disbursement of a loan pursuant to an agreement dated 25/8/2022. The Appellant instituted a suit against the Respondent in the Small Claims Court claiming a sum of Kshs.71,820/- being the outstanding balance from the loan it had advanced to the Respondent vide the aforementioned loan agreement. This is evidenced in the Appellant’s statement of claim produced on pages 5-7 in the record of appeal.
25. The Respondent in his defense argued that he had exceedingly honoured his contractual obligations and produced an account statement to prove this assertion.
26. The record indicates that the Respondent paid a total amount of Kshs.235,200 towards settlement of the principal loan amount and interest. The Hon. Adjudicator found that the aforementioned amount settled more than a fair share of the debt owed to the Claimant considering that only an amount of Kshs.68,250 was disbursed and Kshs.133,000 was repayable. The lower court noted that the loan agreement stipulated an interest rate of 15% per month which would amount to an astonishing annual rate of 180%, which he found to be exorbitant and unconscionable.
27. In the Court of Appeal case of Margaret Njeri Muiruri v Bank of Baroda (Kenya) Limited [2014] eKLR it was held:
“ It is not for the Court to rewrite a contract for the parties. As this Court held in National Bank of Kenya Ltd vs Pipeplastic Sankolit (K) Ltd. Civil Appeal No. 95 of 1999 …‘a Court of law cannot rewrite a contract with regard to interest as the parties are bound by the terms of their contract.’ Nevertheless, courts have never been shy to interfere with or refuse to enforce contracts which are unconscionable, unfair or oppressive due to the a procedural abuse during formation of the contract, or due to contract terms that are unreasonably favourable to one party and would preclude meaningful choice for the other party. An unconscionable contract is one that is extremely unfair. Substantive unconscionability is that which results from actual contract terms that are unduly harsh, commercially unreasonable, and grossly unfair given the existing circumstances of the case (See Black’s Law Dictionary, 9th Edition, Gardner, Ed.).”
28. In Premier Credit Limited v Sielei [2024] KEHC 10275 (KLR), the Court dealt with a similar issue on the unconscionability of contracts. It held:
“ In this case, the loan agreement attracted an annual interest rate of 30.36% and the loan of Kshs. 250,000/- would be repaid to a total amount of Kshs. 896,784/- within a period of 84 months. This amount is over three times the principal amount that was borrowed by the Respondent. I do not hesitate to find the same as grossly unfair and disturbingly punitive. Guided by the authority above on unconscionability of contracts, I am of the view that it is grossly unfair for the Appellant to levy such a punitive interest rate.
The loan agreement is thus unconscionable and on this basis, its enforcement calls for interference by the court. I therefore agree with the finding of the lower court that the interest charged by the Respondent was exorbitant and unconscionable. The Learned Adjudicator was right to subject the loan amount to 13% interest rate based on the prevailing bank interest rate at the time.”
29. In the present case, according to the statement of account produced on page 31 of the record of appeal, which was not challenged by the Appellant, the Respondent paid a total sum of Kshs.235,200/- to settle a loan disbursement of Kshs.68,250/- where only Kshs.133,000 was to be repayable. I agree with the lower court that the amount paid by the Respondent settled more than the fair share of the debt owed by the Respondent.
30. For the Appellant to claim a further sum of Kshs.71,820/- from the Respondent as outstanding amounts due from the loan is not only excessive but unconscionable as defined in the cited authorities above.
31. I am therefore of the view that the Hon. Adjudicator, having considered the evidence placed before him, made a sound judgement and I find no reason to set it aside.
32. In any event, and as indicated above, the issues raised in this appeal are mainly factual. I have evaluated the same and noted that the court exercised its discretion correctly. The Hon. Adjudicator was entitled to evaluate the evidence and come up with his own findings. It is not within the province of this Court to interfere with the factual finding s findings of the Small Claims Court.
33. In the premises, this appeal is therefore dismissed with no order as to costs awarded to the Respondent.
34. It is so ordered.
SIGNED DATED and DELIVERED IN VIRTUAL COURT THIS
19TH DAY OF JUNE 2025
ADO MOSES
JUDGE
In the presence of: -
C/A – Moses
………………………..for the Appellant
N/A….………………………....for the Respondent