Introduction
1. Before this Court for determination is the Plaintiff’s application dated 8th November 2001, in which the Plaintiff/Applicant seeks the orders that: -
"a) This Honourable court be pleased to confirm, clarify and/or interpret the import of Orders No. 3 and 4 issued in the judgement delivered on 3rd March 2020 in respect of the Reports of the Plaintiffs loan facility prepared by the Plaintiffs and Defendants.
b) This Honourable court be pleased to give such further orders as it shall deem fit and just in the circumstances of this case.
c) The costs of this Application be provided for"
2. The Application is based on the grounds on the face of the application and is further supported by the affidavit of NGIGE MONDO, a director of the Plaintiffs, sworn on 8th November 2021. In essence, the application seeks this court’s interpretation of Orders 3 and 4 of the Judgment delivered on 3rd March 2020, where the Judge (Hon. Lady Justice Maureen A. Odero) directed as follows: -
"(3) The Defendant Bank to serve upon the Plaintiff within 30 days of a true and proper account of the 1st Plaintiff's facility from its inception to the date when the suit property was sold putting into consideration the "in duplum" rule.
(4) If the interest charged by the Defendant during this period is found to have flouted the in duplum rule then the Plaintiff will be entitled to a refund, which refund will be payable with interest at Court rates from the date of this ruling till payment in full."
3. In compliance with the said orders by the Court, the Defendant on 21st July 2020 filed an Account of Statement of the 1st Plaintiff's loan facility with the Defendant Bank, indicating that the Defendant Bank had not flouted the in duplum rule. The defendant also filed an affidavit dated 9th November 2020, asserting that the amount outstanding under the facility as at 31st April 2007 was Kshs. 219,149,058.88 and consequently, the amount recoverable under Section 44A (6) of the Banking Act was Kshs. 438,298,117.76. According to the defendant, the in duplum rule had not been breached since the charged property was only auctioned for Kshs. 207,000,000/-.
4. The Plaintiffs on their part instructed the Interest Rate Advisory Centre (hereinafter referred to as "IRAC"), which provided them with a Re-Calculation Report dated 9th September 2020, indicating that the in duplum rule was flouted by the defendant bank, and that the Plaintiffs were therefore entitled to a refund of Kshs. 141,498,690.39.
5. In view of the two conflicting reports, the Plaintiffs, vide the instant application, now seek this court’s determination as to whether or not the in duplum rule was flouted by the defendant, and if yes, whether the Plaintiffs are entitled to a refund of Kshs. 141,498,690.39.
6. The application is expressed to have been brought under Section 1A, 1B, 3, and 3A of the Civil Procedure Act and Order 52, Rule 1 of the Civil Procedure Rules.
7. In opposition to the application, the Respondent chose to rely on its affidavit of BRIAN PETER OTIENO dated 9 November 2020, despite the same having been sworn prior to the present application.
Submissions
8. The matter proceeded by way of written submissions. The Plaintiffs filed their joint submissions dated 12th October 2022, whilst the defendant’s submissions are dated 9th March 2023.
9. The Plaintiffs, in their submissions, maintained that the defendant violated Section 44A of the Banking Act and that the 1st Plaintiff is entitled to a refund of Kshs. 141,498,690.39. Relying on the recalculation report dated 9th September 2020 by IRAC (hereinafter referred to as “the Plaintiffs’ Report”), the Plaintiffs submitted that the outstanding loan balance as at 1st May 2007 was Kshs. 34,890,154.24, and therefore, under Section 44A (2) of the Banking Act, the total amount payable to the defendant under the loan arrangement was not to exceed a total sum of Kshs. 69,680,308.48.
10. The Plaintiff further submitted that the Statement of Account filed by the Defendant in Court on 21st July 2020 (hereinafter referred to as “the Defendant’s Report”) was not accurate since the Defendant, in coming up with the same, applied an interest rate of 31 per cent despite the defendant having applied a discounted rate of 12.5per cent as from 1st January 1998.
11. According to the Plaintiffs, applying the discounted rate of 12.5 per cent, the outstanding loan balance, interest included, as at 1st May 2007 ought to have been Kshs. of Kshs. 69,680,308.48. The Plaintiffs submitted that the Defendant’s Report indicating that the outstanding loan balance as at 1st May 2007 was Kshs. 219,149,058.88 was erroneous since it applied the wrong rate of 31 per cent, and the report was simply intended to justify the Defendant’s allegation that they had complied with the in duplum rule.
12. In conclusion, the Plaintiffs urged this Court to find that, as per the Plaintiffs’ Report, the 1st Plaintiff is entitled to a refund of Kshs. 141,498,690.39, plus interest at the rate of 12 percent per annum from the date of Judgment to 31st August 2020.
13. On its part, the Defendant submitted that the contract between the parties was clear that the interest applicable on the loan was 31 percent per annum, and not the 12.5 percent alluded to by the Plaintiff. According to the Defendant, the rate of 12.5 percent was simply a concessionary one, and was offered by the Defendant to the Plaintiff vide the Defendant’s letter of 10th January 2008, in which the Defendant applied the rate of 12.5 percent and demanded a sum of Kshs. 41,511,835.00, instead of Kshs. 86,537,843.93/-, which was the loan then outstanding.
14. The Defendant submitted that the concessionary interest rate of 12.5 percent was contingent upon the 1st Plaintiff paying the demanded sum of Kshs. 41,511,835.00 within 21 days from the date of that letter (10th January 2008), failure to which the rate was to revert to the contractual rate.
15. According to the Defendant, the 1st Plaintiff having failed to pay the demanded sum of Kshs. 41,511,835.00 within the stipulated period of 21 days, the rate of interest applicable to the facility reverted back to the contractual rate of 31 percent as per the letter of offer.
16. The Defendant maintained that the interest charged was in accordance with the agreement between the parties and that the amounts repaid did not in any way violate Section 44A of the Banking Act. It was the Defendant’s submissions that the loan became non-performing prior to 1st May 2007, when Section 44A of the Banking Act came into force, and therefore, the same is subject to the provisions of Section 44A (6) of the Act.
17. Relying on the Defendant’s Report, the Defendant submitted that as at 31st April 2007, the loan had become non-performing and the amount then outstanding was Kshs. 112,820,947.00. It was therefore the Defendant’s position that, factoring in the in duplum rule, the total amount recoverable from the 1st Plaintiff ought to have been Kshs. 225,641,894.00.
18. The Defendant submitted that the charged property having been auctioned for a sum of Kshs. 207,000,000/- only, the total amount that was actually recovered by the bank was only Kshs. 198,898,015.91/-, factoring in the auctioneer’s fee (Kshs. 5,000,000/-) and auction costs (Kshs. 6,682,400/-). This, according to the Defendant, was far below the in duplum point.
19. The Defendant maintained that contrary to the Plaintiff’s allegations, they complied with the provisions of Section 44A of the Banking Act. Consequently, it was the Defendant’s prayer that this Court find as much.
Analysis and Determination
20. I have carefully perused the Plaintiff’s application herein, the response by the Defendant, and the Parties’ submissions filed herein. The only issue for determination is whether the Plaintiff is entitled to any refund on account of the Defendant having flouted the in duplum rule in respect of the facility in question.
21. From the submissions, it is common ground that vide the Judgment of this Court (Maureen Odero J) of 3rd March 2020, the Judge under orders 3 and 4 of the Judgment directed as follows: -
"(3) The Defendant Bank to serve upon the Plaintiff within 30 days of a true and proper account of the 1st Plaintiff's facility from its inception to the date when the suit property was sold putting into consideration the "in duplum" rule.
(4) If the interest charged by the Defendant during this period is found to have flouted the in duplum rule then the Plaintiff will be entitled to a refund, which refund will be payable with interest at Court rates from the date of this ruling till payment in full."
22. The genesis of this dispute is that vide a letter of offer dated 24th December 1996, the Defendant extended to the 1st Plaintiff a loan facility in the sum of Kshs. 13,000,000/- for a period of 3 years, repayable by way of monthly instalments of Kshs. 300,000/- plus interest charged at 31per cent per annum. The facility was secured by a charge dated 14th April 1997 of Kshs. 16,000,000/- over property known as L.R. No. 1870/111/208 Brookside Grove Westlands-Nairobi, then valued at Kshs. 23,000.000.
23. It is further not disputed that there was a default on the part of the 1st Plaintiff in making repayments, and the Defendant consequently realized the security for a sum of Kshs. 207,000,000/-.
24. From the Judgment of Maureen Odero J, issued in the matter on 3rd March 2020, the only outstanding issue left by the Learned Judge was that of taking of accounts of the facility, right from inception to the date of auction. The Judge directed that if the amount recovered under the facility is found to have exceeded that permitted under Section 44A, then the 1st Plaintiff was entitled to a refund of any amounts found to be in excess.
25. I have carefully analyzed both the Plaintiff’s Report and the Defendant’s Report. I note that the major point of departure between the two reports is the interest rate applied to the facility. While the Plaintiff has taken the position that the applicable rate was the discounted rate of 12.5 percent as per the Defendant’s letter of 10th September 2008, the Defendant, on its part, argues that the discounted rate of 12.5 percent was concessionary and was only applicable if the Plaintiff paid the demanded sum of 41,511,835.00/- within the 21 days stated in its said letter of 10th January 2008. According to the Defendant, the 1st Plaintiff having failed to pay as per the letter of demand, the rate then reverted to the contractual rate of 31 percent.
26. It is now a longstanding principle of law that parties to a contract are bound by the terms and conditions thereof, and that it is not the business of courts to rewrite such contracts. In National Bank of Kenya Limited v Pipe Plastic Samkolit (K) Ltd [2002] 2 EA 503 [2011] eKLR at 507, the Court of Appeal stated:
“A court of law cannot rewrite a contract between parties. The parties are bound by the terms of their contract, unless coercion, fraud or undue influence are pleaded or proved.”
27. Again, the Court of Appeal in the case of Centurion Engineers & Builders Limited v Kenya Bureau of Standards (Civil Appeal E398 of 2021) [2023] KECA 1289 (KLR) (27 October 2023) (Judgment), quoted the House of Lord’s decision in Brogden v Metropolitan Rly Co [1876-77] LR 2 APP CAS 66, Lord Blackburn, stated as follows:
“I have always believed the law to be this, that when an offer is made to another party and in that offer, there is a request express or implied that he must signify his acceptance by doing some particular thing, then as soon as he does that thing, he is bound.”
28. Having considered the pleadings filed herein, the rival submissions and evidence as presented by both parties, it is clear to this Court, an indeed not disputed, that there was a contract between the parties as evidenced by the Defendant’s letter of offer dated 24th December 1996, which was duly accepted by the Plaintiff. According to the contract, the interest rate applicable was agreed as 31 percent. Evidence on record indicates that by a letter dated 10th January 2008, after the 1st Plaintiff defaulted, the Defendant, applying a concessionary rate of 12.5%, demanded from the Plaintiff a sum of Kshs. 41,511,835.00, all inclusive, to be paid within 21 days from the date of that letter.
29. While the Plaintiff used the concessionary rate of 12.5 per cent in preparing its report, I note from the documents submitted that the said rate did not have any legal basis. I agree with the position expressed by the Defendant that the said rate was merely an offer extended to the 1st Plaintiff, but which was not accepted when the 1st Plaintiff failed to pay the sum of Kshs. 41,511,835.00, all inclusive, within 21 days from 10th January 2008.
30. Imposition of interest is a contractual matter that must be expressly provided in a contract before it can be implemented. In Francis Joseph Kamau Ichacha v Housing Finance Company Limited [2014] eKLR, this Court (Odunga J, as he then was) expressed himself as follows:
“Can it therefore be said that a practice in which the Banks unilaterally decide to load the customer’s account with penalties at their own discretion whose rates are only known to the Bank is such a certain practice that it can be said to amount to trade usage? In my view that would amount to stretching the word “certain” too far. For one to say that the penalty is certain not only ought there be certainty as to the levy of the interest but since the rate is not contained in any contractual document,….”
31. In any event, I did not hear the Plaintiff allege that it relied to its detriment on the concessionary interest rate offer (12.5%) by the Defendant. Evidence on record is clear that the 1st Plaintiff did not make any payments towards the demanded amount despite the offer by the Defendant.
32. In the premises, this court is persuaded that no variation as to the rate of interest applicable to the facility was arrived at by mutual agreement and meeting of the minds. In Jiwaji v Jiwaji [1986] EA 547 this court held:
“where there is no ambiguity in an agreement it must be construed according to the clear words used by the parties.’’
33. Having reached the above conclusion, and taking into account that the Plaintiff/Applicant herein has failed to satisfactorily prove that the interest charged by the Defendant went beyond the in duplum point as enshrined under Section 44A of the Banking Act, it is my view not necessary to outline and discuss in detail the legal provisions on the in duplum rule, suffice to say that I agree with the Defendant’s submissions that the loan having become non-performing prior to the coming effect of the provision, then, the same was to be subject to the provisions of Section 44A(6) of the Act, and not Section 44A(2) of the Act as advanced by the Plaintiff in its submissions.
34. It is, however, critical to point out that I have carefully reviewed the Defendant’s Report and find the same more credible than the Plaintiff’s Report. As indicated above, unlike the Plaintiff’s Report which used the incorrect interest rate of 12.5 per cent, the Defendant’s Report was based on the contractual rate of 31 percent. Additionally, the Defendant’s Report was clear that the loan had become non-performing as of 31st April 2007, and that the amount then outstanding was Kshs. 112,820,947.00, making the in duplum point to be Kshs. 225,641,894.00. This was obviously way above the Kshs. 198,989,015.91, which was recovered by the Defendant bank towards the facility.
35. The upshot of the above is that I find submissions by the Plaintiff to be without merit and are hereby dismissed. Accordingly, I make the following further orders in respect of Orders 3 and 4 of the Judgment of this Court delivered on 3rd March 2020:
i. There is no evidence that the Defendant breached the in duplum rule in respect to the facility.
ii. The 1st Plaintiff is therefore not entitled to any refund.
36. I, however, order that each party bears their own costs of this application since the same was filed under the directions of the Court.
37. This file is closed
38. It is so ordered.
SIGNED, DATED, and DELIVERED IN VIRTUAL COURT
THIS 15TH DAY OF MAY 2025
ADO MOSES
JUDGE
In the presence of:
Moses – Court Assistant.