https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/12251

**REPUBLIC OF KENYA** **IN THE HIGH COURT OF KENYA AT NAIROBI** **MILIMANI LAW COURTS** **COMMERCIAL AND TAX DIVISION** **COMM. CASE NO. 304 OF 2009** **BETWEEN** **ZEDEKIAH EVANS NYAMONGO ACHIRA.........................................1ST PLAINTIFF** **RUTH MORAA ACHIRA…………….……………………………….2ND PLAINTIFF** **AND** **SAVINGS AND LOAN KENYA LIMITED……………………..……… DEFENDANT** **JUDGMENT** **Introduction and Background** 1. By their plaint dated 16th February 2009, the Plaintiffs state that on or about 10th November 1982, they applied for a loan of Kshs.286,200.00/= from the Defendant to buy tenant purchase House No. 87 in the Langata Civil Servants Housing Scheme which the Defendant had apparently financed to build on behalf of the *Civil Servants Housing Company Limited*. They claim that Between 1991 and 2002, they paid the Defendant a total of Kshs.4,050,313.50/= in interest and expenses but despite these payments, the Defendant's records in 2002 showed an outstanding balance of Kshs. 2,302,507.25/=. 2. The Plaintiffs aver that they discovered that the Defendant had been applying interest monthly, contrary to the agreed annual terms in the Charge document and after a complaint, the Defendant acknowledged the error in 2003, refunded Kshs.581,305.22/= and wrote off the remaining balance of Kshs.2,302,507.25/=. That further scrutiny revealed additional anomalies, including charging interest for a period of 12 months before the loan was even disbursed, increasing the interest rate from 14% to 16% without providing the required one-month notice and applying this increased rate for over six years without proper notice. 1. That the Defendant offered a final settlement of Kshs.113,454.97/=, which the Plaintiffs refused and the Plaintiffs hired forensic accountants, *M/s Omanwa & Associates,* who concluded that, as of 31st December 2008, the Defendant was still indebted to the Plaintiffs for Kshs.6,538,326.04/= due to the overpayment caused by the Defendant’s actions. They accuse the Defendant of charging interest on a monthly instead of annual basis, charging interest for non-existent periods, unlawfully increasing the interest rate without notice, mismanaging the loan account which led to inflated payments, continuing to demand payments and harass the Plaintiffs through advocates and auctioneers even after the loan was effectively paid off and violating statutory duties under the ***Banking Act*** and the ***Central Bank of Kenya Act***. 2. For these reasons, the Plaintiffs are praying to the court for Kshs.6,538,326.04/= for the overpaid amount, with interest, general and exemplary damages for mental distress, embarrassment and breach of duty, Kshs.132,500.00/= for the fees paid to the accountants, interest and costs of the suit. 1. The Defendant responded to the suit through its amended defence dated 8th June 2009 denying all allegations of fraud, negligence, or illegal operation of the loan account. The Defendant asserts that the Plaintiffs were in perpetual default on their monthly instalment payments, which caused the loan balance to accrue contractual and penal interest as per standard banking practice. The Defendant disputes the Plaintiffs' claim that interest was to be applied annually and it avers that Clause 3 of the Charge document provided for interest to be applied monthly and not annually. It denies that it admitted any liability and states that any refunds or offers made were made in good faith, on a without prejudice basis, in line with good banking practice and without any admission of liability. 2. In the alternative, the Defendant states that if any errors or mistakes occurred in the Plaintiffs' loan account, they were honest mistakes, they were not made negligently or with fraudulent intent and that they were rectified promptly once pointed out, with all overpaid monies refunded. The Defendant claims that the Plaintiffs' claim is statutorily barred because it relates to matters that are over 27 years old and it further pleads laches, stating that the delay is prejudicial because the Defendant no longer employs the potential witnesses who could have testified on its behalf, which led to a miscarriage of justice. 3. The Defendant accuses the Plaintiffs of not coming to court with clean hands and avers that the Plaintiffs are perpetual defaulters of their loan obligations and therefore should not be entitled to relief from the court. The Defendant contends that the Plaintiffs' suit is materially defective as it discloses no reasonable cause of action, it denies all particulars of loss and damage claimed by the Plaintiffs and puts them to strict proof thereof and prays that the Plaintiffs' suit be dismissed with costs. 4. At the hearing, the 1st Plaintiff testified on behalf of the Plaintiffs (PW 1) and relied on his witness statement dated 21st July 2020 and he produced their List and Bundle of Documents of the same date (PExhibit 1-12). They also called, Evans Maeba, an accountant at *M/s Omanwa & Associates* (PW 2), who adopted his report dated 2nd January 2009. The Defendant did not call any witness of produce any evidence in support of its defence. After hearing the parties, the court directed them to file written submissions which are on record and since the same are a mirror of the parties’ positions highlighted above, I will not rehash the same but make relevant references in my analysis and determination below. **Analysis and Determination** 1. As these are civil proceedings, it should not be lost that the court’s determination is on a balance of probabilities and is guided by the principle that he who alleges must prove. Denning J., in **Miller v Minister Of Pensions [1947]2 All ER 372** discussed the burden of proof and he stated as follows: *“That degree is well settled. It must carry a reasonable degree of probability, but not so high as is required in a criminal case. If the evidence is such that the tribunal can say: ‘we think it more probable than not’, the burden is discharged, but, if the probabilities are equal, it is not. Thus, proof on a balance or preponderance of probabilities means a win, however narrow. A draw is not enough. So, in any case in which the tribunal cannot decide one way or the other which evidence to accept, where both parties’ explanations are equally (un) convincing, the party bearing the burden of proof will lose, because the requisite standard will not have been attained.”* 1. The aforementioned position has now been espoused by our superior courts and finds statutory comfort in **sections 107 and 108** of the ***Evidence Act(Chapter 80 of the Laws of Kenya)*** which provide as follows: ***107. Burden of proof.*** *(1) Whoever desires any court to give judgment as to any legal right or liability dependent on the existence of facts which he asserts must prove that those facts exist.* *(2) When a person is bound to prove the existence of any fact it is said that the burden of proof lies on that person.* ***108. Incidence of burden.*** *The burden of proof in a suit or proceeding lies on that person who would fail if no evidence at all were given on either side.* (Also see **Ignatius Makau Mutisya v Reuben Musyoki Muli [2015] KECA 612 (KLR**) 1. Further, I am in agreement with the Defendant’s submission that even though it did not call any witness or produce evidence, the Plaintiffs still have a duty to prove their case on a balance of probabilities as is required by law. This was held by the Court of Appeal in **Karugi & another v Kabiya & 3 others [1983] KECA 38 (KLR)** where it was stated that, *“The burden was always on the Plaintiff to prove his case on a balance of probabilities even if the case was heard as formal proof”.* Likewise, failure by a defendant to contest the case does not absolve a plaintiff of the duty to prove the case to the required standard hence in **Gichinga Kibutha v Caroline Nduku [2018] KEELC 3981 (KLR)** the Court held that, *“It is not automatic that instances where the evidence is not controverted the Claimants shall have his way in Court. He must discharge the burden of proof. He must prove his case however much the opponent has not made a presence in the contest.”* 2. From the parties’ submissions, the court is being asked to determine the following abridged issues: 3. *Whether the suit is statute barred.* 4. *Whether the Defendant improperly administered the mortgage account.* 5. *Whether the Defendant unlawfully varied the contractual interest rate.* 6. *Whether the Defendant overcharged the Plaintiffs.* 7. *Whether the Defendant’s admission of overpayment establishes liability.* 8. *Whether the Defendant was entitled to levy professional, legal, valuation and auctioneer's charges.* 9. *Whether the Defendant breached its duty of good faith and proper accounting.* 10. *Whether the Plaintiffs are entitled to General Damages.* 11. *Whether the Plaintiffs have proved their case.* 12. *Whether the Plaintiffs are entitled to the remedies sought.* **Suit being time barred** 1. The Defendant submitted that the suit is time-barred under **section 4(1)(a)** of the ***Limitation of Actions Act*** as actions founded on contract must be brought within six years of the cause of action accruing. That the events complained of, that is, variations in interest, debiting legal and auctioneer fees and interest charges accrued in the 1980s and 1990s but the suit was filed in 2009, over 20 years later. 2. The Defendant submitted that the Plaintiffs' claim that the Bank acknowledged liability thus restarting limitation under **section 23(3)** is unfounded and that under **section 24(1),** an acknowledgment must be unequivocal. The Defendant avers that the 2003 and 2004 letters were explicitly marked "without prejudice" and without admission of liability, maintaining only that Kshs.113,000.00/= was refundable and consequently, the Court lacks jurisdiction. 3. In response, the Plaintiffs submitted that the suit is not barred by limitation or laches and that after the loan account was operated, the Defendant reviewed the account, recalculated sums, refunded monies, wrote off large amounts and acknowledged additional sums due to the Plaintiffs. The Plaintiffs contended that these actions constitute continuing transactions and acknowledgments that reset or interrupt the limitation period and that the Defendant cannot reopen, recalculate and settle accounts while simultaneously claiming the Plaintiffs are time-barred from challenging those same accounts 4. It is not in dispute that under **section 4(1)(a)** of the ***Limitation of Actions Act,*** actions founded on contract are barred after six years from the date the cause of action accrued. However, **section 23(3)** of the same ***Act*** goes on to state that this right of action accrues when ‘……*the person liable to or accountable therefore acknowledges the claim or makes any payment in respect of it* and ‘*the right accrues on and not before the date of the acknowledgement or the last payment.’* From the evidence, it is clear that the parties corresponded on the status of the loan account between 1999 and 2005. Whereas the Defendant submitted that its letters of 17th November 2003, 25th February 2004 and subsequent correspondence were explicitly made on a “without prejudice” basis and without admission of liability, my perusal of these letters show that there is no explicit "without prejudice" notation. They are straightforward letters making settlement offers and responding to the Plaintiffs' queries, providing explanations and clarifications. It therefore follows that the letters are admissible as evidence and can constitute valid acknowledgments under **section 23(3)** of the ***Limitation of Actions Act***. 5. As stated, for a letter to constitute an acknowledgment under **section 23(3),** it must be in writing, signed by the person making the acknowledgment and be an unequivocal admission of a debt or liability. The letter of 17th November 2003 is in writing, is signed by the Defendant’s Manager, Debt Recovery and unequivocally states that "*Based on the adjustments the final amount that is now due to you is Kshs.113,454.97/=."* It then goes on to explicitly make an offer to pay, "*Please advise whether this is acceptable to you to enable us make the refund and conclude this long outstanding matter.*" I find that this is a clear and unequivocal acknowledgment that the Defendant owes the Plaintiffs money and it is therefore an acknowledgment of a debt and the limitation period would begin to run from that date, not from the earlier dates when the original errors occurred. The Plaintiffs filed their suit in April 2009, which is within six years after the acknowledgment and therefore, they were within time. This and further letters by the Defendant on 16th May 2005 and 31st July 2005 also counts as an intervening event as the parties appear to have been negotiating and the Bank reconciling the loan account meaning that time therefore froze as this reconciliation was being undertaken (see **Bhupinder Singh Dogra v Coast Development Authority [2021] KEHC 7822 (KLR)**]. 6. It is for these reasons that I find that the suit is not statute barred as it was filed within six years from the date in which the cause of action arose which was as from November 2003 whereas the suit was filed five years and five months later **Improper administration of the mortgage account** 1. The Plaintiffs submitted that the Defendant fundamentally breached its contractual and fiduciary obligations in managing the mortgage facility. That the facility was governed by specific terms in the Letter of Offer, Memorandum as to Advances and Charge document but the Defendant charged interest inconsistent with agreed contractual rates from the inception and rendered un-reconcilable account statements. They contended that in banking disputes, the lender bears the evidential burden to prove that all debits, charges and interest variations were contractually authorized but the Defendant failed to discharge this burden. 2. The Defendant submitted that the errors in calculation were corrected in good faith in 2003 and that third-party costs including legal, valuation and auctioneer fees were deemable principal expenses incurred as a direct result of the Plaintiffs' persistent default between 1983 and 1991, as permitted under the Charge and that copies of receipts were provided, making these non-refundable. The Defendant submitted that it derived no benefit, its write-offs and refunds were remedial measures executed in good faith without prejudice and not an election to admit liability for the Plaintiffs’ current claim. 3. Going through the evidence, the Defendant, in its letter of 17th November 2003 states in part that: *"In our earlier analysis we inadvertently included an interest charge for 1982. This was an oversight since the loan was released in November, 1983. We have adjusted our analysis to accommodate the fact that the loan was released in November, 1983…..Based on the adjustments the final amount that is now due to you is Kshs.113,454.97"* 1. PW 1 testified and it was not disputed that the Defendant acknowledged errors and refunded Kshs. 581,305.22 by way of cheque to the Plaintiffs and that the Defendant wrote off Kshs. 2,302,507.25 that it had previously claimed was outstanding. In its letter of 25th February 2004, the Defendant provided explanations but did not deny liability for the previous overcharged amount. It stated *"We hope the above information clarifies all the issues raised... and shall appreciate if this matter is put to rest at that."* The Defendant’s letter of 27th May 2003 and attached statement also indicated that the loan account had a zero principal and interest balance and the Defendant stated that the account had been closed. 2. From the Defendant’s own admissions above, it is my finding that the Plaintiff’s account was improperly managed. **Variation of the contractual interest rate** 1. The Plaintiffs submitted that the variations in interest rates were unlawful, irregular and unenforceable and that parties are bound by their voluntary contracts and courts or parties cannot unilaterally alter terms unless expressly permitted by agreement and proper procedure is followed as was held in **National Bank of Kenya Ltd v. Pipeplastic Samkolit (K) Ltd & another [2001] KECA 362 (KLR)**. 1. The Plaintiffs contended that the Defendant failed to prove the specific clause authorizing the variation, the occurrence of circumstances justifying the variation, service of requisite notices and proper computation of the revised interest. 2. On its part, the Defendant submitted that under **section 48** of the ***Evidence Act,*** an expert witness owes an overriding duty of objective impartiality to the Court but PW2 admitted in his testimony that he was acting solely as the Plaintiffs' witness to justify their figure and that expert testimony must be tested against primary facts. The Defendant argued that PW2 relied strictly on unverified document copies supplied by the Plaintiffs without seeking internal ledgers or clarifications from the Bank and that his report is inadmissible hearsay under **section 63** of the ***Evidence Act.*** That the report arbitrarily assumed interest should remain capped at 14% while ignoring variation clauses and unjustifiably rejected valid enforcement expenses in cases of default. 3. As per the Letter of Offer dated 16th November 1982, I note that Clause 1(b) provides that “*Interest is calculated on the amount of the advance to 31st December following the date of the advance and thereafter on the balance owing at the 1st January in each year. The Mortgage Deed or Charge confers on the Company the right, on giving notice, to increase or decrease the rate of interest.”* Thus the Letter of Offer expressly refers to the Charge document for the power to vary interest and it requires notice to be issued for any variation. However, I note that it does not specify the period of notice or the form it must take. 4. Going through the Charge document dated 15th November 1983, I note that Clause 5(i) on the interest rate provides that *"The Chargor will pay interest on the principal sum for the time being outstanding ... at the rate of fourteen per centum (14%) per annum ... or at such other rate as the Chargee shall from time to time determine in accordance with the provisions of sub-clause (iii) of this Clause."* Clause 5(ii) provided for the power to vary as follows: *"The Chargee shall have power from time to time to vary the rate of interest payable hereunder (including the right to vary the minimum rate of interest and the periodical rests at which interest is calculated) provided that the Chargee shall give to the Chargor not less than one month's previous notice in writing of any such variation and such variation shall take effect on the date specified in such notice."* 5. Clause 5(iii) then provides for Increased Monthly Instalments that: *"In the event of the Chargee requiring an increase in the rate of interest under the provisions of sub-clause (ii) of this Clause the Chargee will notify the Charger of the amount of the resulting increased monthly instalments payable under the provisions of Clause 3 hereof and the first of such increased monthly instalments shall become due and payable on the first day of the month next after notification of the amount thereof to the Charger ."* 6. From the above, I find that the Defendant had the power to vary the rate "from time to time”, it was to give "not less than one month's previous notice in writing" of any variation, the notice was to specify the date on which the variation takes effect and the Defendant was to notify the Plaintiffs of the amount of the resulting increased monthly instalments and the increased instalments become due "on the first day of the month next after notification". The initial interest rate was also set at 14% per annum which was the agreed contractual rate. 7. In the Defendant’s letter of 16th October 1993, it informed the 1st Plaintiff that: “*WE THEREFORE HEREBY GIVE YOU NOTICE THAT IN ACCORDANCE WITH THE RELEVANT CLAUSE OF THE MORTGAGE CHARGE OVER YOUR PROPERTY. YOU ARE REQUIRED TO PAY INTEREST AT THE INCREASED RATE OF 29% PER ANNUM FROM THE FIRST DAY OF SEPTEMBER, 1993 ON ALL MONIES DUE TO OR TO BECOME DUE TO THE COMPANY FROM TIME TO TIME ON THE SECURITY OF SUCH MORTGAGE."* This notice states the increase takes effect "from the first day of September, 1993." However, the letter is dated 16th October 1993 meaning the Defendant is purporting to apply the increased rate retroactively, before the notice was even given which is a clear breach of Clause 5(ii), which requires notice before the variation takes effect. Even if the notice were valid, it gives only approximately two weeks whereas the Charge contract requires "not less than one month's previous notice." 8. There is also a letter dated 20th November 1997 stating that *“Due to the high increase in the cost of funds and other operating expenses we have been forced to revise interest rates upward on all mortgage facilities as indicated here below effective from 1st December 1997 :- All Residential property facilities 20% per annum”* This letter is also problematic because it is dated 20th November 1997 and the increase takes effect on 1st December 1997 which is only 10 days' notice whereas the Charge requires "not less than one month's previous notice." Clause 5(iii) also requires the Defendant to notify the Defendants of the amount of the resulting increased monthly instalments but there is no evidence this was done. 9. There is also a letter dated 3rd March 1999 by the Defendant stating: *"We are pleased to advise that we have further reduced our interest rate on your mortgage Account No 201892419 to 24.00% with effect from 1st March, 1999."* While the Defendant was reducing the rate, this letter demonstrates that the Defendant was varying the rate without following the contractual notice procedure. The reduction is effective from 1st March 1999, but the letter is dated 3rd March 1999 which again, is an improper retroactive application and there is no evidence the Defendant notified the Plaintiffs of the new monthly instalment amount as required by Clause 5(iii). 10. Another letter dated 1st September 2000 states *“We are pleased to advise that we have further reduced our interest rates w.e.f. 1st September, 2000 as follows: Residential rates - from 24% to 22% p.a."* The Letter is dated 1st September 2000 and is effective from 1st September 2000 which is a variation with zero days' notice. The letter also states "*your new monthly installment will be Kshs.37,224.61 exclusive of ledger fees and Insurance”* which is the first time the Defendant has provided the required notification under Clause 5(iii). However, as I have found, this is only for this one variation and there is no evidence of compliance for earlier variations. 11. It is thus clear that the Defendant is trying to rely on the very variations it failed to properly implement I find that the principle of "he who comes to equity must come with clean hands" applies as the Defendant cannot benefit from its own failure to comply with the contractual notice requirements. Since the variations were unlawful, any interest charged above the contractual rate of 14% was unauthorized and the Plaintiffs are entitled to a refund of all interest paid above 14%, plus interest on that amount (see **Francis Joseph Kamau Ichatha v Housing Finance Company of Kenya Limited [2014] KEHC 3619 (KLR)].** The Defendant failed to notify the Plaintiffs of the resulting increased monthly instalments as required by Clause 5(iii) which means the Plaintiffs were left uncertain about what they were required to pay, which caused additional stress and financial hardship. 12. It is therefore my finding that the Defendant unlawfully varied the contractual interest rate **Overcharging the Plaintiffs** 1. The Plaintiff submitted that overcharging was proven on a balance of probabilities and that PW2’s report and statements showed substantial discrepancies. Further, that the Defendant acknowledged computational errors by refunding a portion of the overcharged sums and that an admission against interest is strong evidence and that once overcharging was admitted through partial refund, the burden shifted to the Defendant to justify the remainder of disputed charges, which it failed to do. I indeed agree with the Plaintiffs that based on my findings above, the Defendant definitely overcharged the Plaintiffs by improperly applying interest rates on the loan that irregularly ballooned the outstanding amount. **Admission of overcharging and liability** 1. Having found that the Defendant admitted overcharging the Plaintiffs some amounts, the question then is whether this admission amounts to a liability on the Defendant’s part. The Plaintiffs submitted that the Defendant’s conduct constitutes conclusive proof and admission that the mortgage account was improperly maintained. That the Defendant took explicit actions including recomputing the account, refunding Kshs.581,305.22.00/=, writing off Kshs.2,302,949.00/=, releasing title documents, discharging the Charge and acknowledging an additional Kshs.113,454.97/= due. 2. The Plaintiffs submitted that the Defendant cannot approbate and reprobate by admitting overpayment or mistakes through its conduct while denying liability in court and they relied on inter alia the court’s decision in **Royal Ngao Holdings Limited v N.K. Brothers Limited [2020] KEHC 2550 (KLR)** to assert the doctrine of estoppel against approbation and reprobation. The Defendant also relied on this decision and submitted that the doctrine does not apply to it as approbation and reprobation requires a party to make an election between two courses of action and receive a benefit therefrom. The Defendant reiterated that it derived no benefit and that its write-offs and refunds were remedial measures executed in good faith without prejudice and not an election to admit liability for the Plaintiffs’ claim. 3. In its letter of 17th November 2003, the Defendant admitted that it made errors in its calculations, that it inadvertently charged interest for 1982, that it overcharged the Plaintiffs and that it owed the Plaintiffs Kshs.113,454.97/= as of the date of the letter. It was also not disputed that the Defendant refunded Kshs.581,305.22/= to the Plaintiffs which was an acknowledgment that the Plaintiffs had overpaid by at least that amount. Also not disputed was that the Defendant wrote off Kshs.2,302,507.25/= that it had previously claimed was outstanding which is also an acknowledgment that the Plaintiffs did not owe that amount. The Defendant discharged the Plaintiffs' property from the charge which was an acknowledgment that the loan had been fully repaid. The letter of 27th May 2003 by the Defendant also indicated that the loan had been repaid and there was no debit balance. 4. However, going through the evidence, I find that the Defendant never admitted that the Plaintiffs overpaid by Kshs.6,538,326.04/= or that PW 2’s report is accurate. In fact, the Defendant heavily disputed this report and its findings citing various methodological flaws. The Defendant also never admitted that the Plaintiffs are entitled to interest on the overpayment at commercial rates or that the Plaintiffs are entitled to general or exemplary damages. The Defendant's position has always been that the total overpayment was Kshs.694,761.22/=, that is, Kshs.581,305.22/= and Kshs.113,454.97/= of which Kshs.581,305.22/= has already been refunded, leaving only Kshs.113,454.97/= outstanding. 5. Therefore, the Plaintiffs still bore the burden of proving the specific amount of Kshs.6,538,326.04/= and I find that the Defendant's admissions are evidence of overcharging, but they are not conclusive proof of the full amount claimed. Whereas I can agree that the Defendant is estopped from denying that errors were made in the account, that the Plaintiffs were overcharged and that it owed the Plaintiffs Kshs.581,305.22/= and Kshs.113,454.97/=, the Defendant is not estopped from denying the larger figure of Kshs.6,538,326.04/=. **Levying of professional, legal, valuation and auctioneer's charges** 1. The Plaintiffs submitted that these charges were unauthorized, unlawful and must be reimbursed with interest and that a chargee can only recover expenses expressly authorized by the Charge document and the law. They contended that the Defendant failed to strictly prove the necessity, contractual authorization, actual expenditure, or connection of these charges to the Plaintiffs' account. 2. My perusal of the Letter of Offer indicates that Clause 10 on Legal Fees provides that *"Legal fees payable by you."*, Clause 1(b) on Bank Exchange and Charges provides that *"Bank exchange and charges must be paid by the Applicant”* and the General Provisions state that *"The Applicant must acquaint himself with any liability there may be in respect of road or sewage connection charges and as to his ability to meet such liability."* I find that the Letter of Offer is vague on what charges may be levied, it mentions "legal fees" but does not specify what they cover or how they are calculated, it mentions "bank exchange and charges" but does not define them and there is no mention of auctioneers fees, valuation fees or other professional charges. 3. The Charge contains more detailed provisions including Clause 9 on Expenses which provides that: *"The Chargee may from time to time make such payments as it may consider expedient to any person whether the Chargor or anyone acting at the Chargor's request or a receiver or a subsequent chargee or to any person acting on the instructions of the Chargee in connection with completing maintaining repairing amending altering or improving the said property or for outgoings in relation thereto or for any costs or expenses incurred by the Chargee for the enforcement protection or improvement of the security hereby created and all money so paid shall be deemed to be principal money hereby secured and shall carry interest at the rate for the time being payable hereunder from the date of the same being paid by the Chargee and shall be repayable with such interest by the Chargor on demand made by notice in writing and until repayment with such interest shall be a charge on the said property.* *The expression "expenses" in this Clause shall be deemed to include all payments made or to be made by the Chargee for the benefit of this security in respect of:* *(i) Any work in or in connection with the construction repair maintenance or improvement of any private road or street,* *(ii) Ground rent or any tax rate or assessment whatsoever affecting the said property;* *(iii) All costs and disbursements (legal or otherwise) properly incurred or paid by the Chargee incidental to this Charge or the collection of any moneys due or to become due here under which if not agreed shall be taxed as between advocate and client. "* 1. Clause 3 on Monthly Instalments is that *"If the Charger shall pay to the Chargee* *the said principal sum with interest thereon calculated as aforesaid by monthly instalments of Shillings Four thousand and fifty-six (Shs. 4,056/-) each (or by such increased monthly instalments as the Chargee may require under the provisions of sub-clause (iii) of Clause 5 hereof) until the whole of such principal sum with interest thereon shall be fully paid..."* Clause 6(iii) on Insurance provides *"That at all times during the continuance of this security the Chargee may in its own or some other agency and at the expense of the Charger insure and keep insured for such amounts in such names and with such insurers as the Chargee may from time to time select any buildings or any effects or property of an insurable nature... Against loss or damage by fire; Against such other risks as the Chargee may from time to time think expedient."* 1. Clause 6(iv) on Repayment of Insurance Premiums provides *"That the Charger will repay every sum from time to time paid by the Chargee for effecting or keeping on foot any such insurance within Fourteen (14) days after the date on which the same was paid by the Chargee and that every such sum until it is repaid shall bear interest at the rate for the time being payable hereunder and with the interest thereon shall be charged on the said property."*Clause 6(x) on Life Assurance provides *"That the Chargor will repay by equal monthly instalments, every premium paid by the Chargee for effecting or keeping in force an assurance on the life of the Chargor for a sum assured equal to the amount of the advance from time to time outstanding."* 2. The Plaintiffs pleaded that the Defendant caused them “…*to pay large sums of money in interest and other expenses including lawyers fees, auctioneers fees, inflated insurance premiums, etc.”* PW 2’s report stated that *"Additional Charges - Valuation, legal, Auctioneers and ledger fees applied. All these are summarized under Schedule 1 column seven (7) as expenses additional totaling Kshs.638,653.50 .* *The above figure fully reconciled as follows:* *Bank Schedule of Debits 735,153.50* *Less: Bounced Cheques* *Debits 13/9/1993 6,500.00* *Debits 19/4/1999 90,000.00 (96,500.00)* **638,653.50** 1. The Defendant’s letter of 17th November 2003 state that: *"Legal, valuers' and auctioneers' fees are not refundable as these are payments for services rendered by third parties as a result of the irregular manner in which you conducted your account.”* Clause 9(iii) above requires that charges be "properly incurred or paid" but this letter admits that the charges arose from the "irregular manner in which you conducted your account." This is problematic for the Defendant because the Plaintiffs' irregular conduct or default was a consequence of the Defendant's own errors in applying interest. The Defendant cannot rely on the Plaintiffs' default to justify charges when the default was caused by the Defendant's own errors. The Plaintiffs had been disputing the interest calculations since 2002 and the Defendant's continued enforcement actions during this dispute were premature and unnecessary. 2. Further, Clause 9(iii) required that charges be "incidental to this Charge or the collection of any moneys due." The charges in question include Legal Fees of Kshs.235,460.00/= which arose from the Defendant instructing advocates to demand payment and threaten sale. However, if the Defendant's own records show the loan was overpaid as they did by 2003, then no money was due and these charges were not incidental to the Charge. There was also Auctioneers Fees of Kshs.101,566.00/= which arose from the Defendant instructing auctioneers to advertise the property for sale. The Plaintiffs' letter of 22nd July 1999 complained that these charges were excessive and that the Defendant was using advocates and auctioneers even while discussions were ongoing. The Plaintiffs stated: *"Legal and auctioneer costs, which have been charged to us, are about Kshs.379,000/=. I think these people's costs are excessive, considering that all they do is to advertise the house on paper."* Lastly, the valuation/surveyors Fees of Kshs.34,891,00/= appear to be for inspections and valuations related to the enforcement process and again, if the loan was overpaid, these charges were unnecessary. 3. On the insurance premiums, the Defendant's letter of 25th February 2004 (Page 34-provided explanations for the same that “*Fire Insurance Premium payable is based on the current market value of permanent developments (house) on the charged property. The market value of the subject property in 1983 was Kshs.375,000/=. The value however appreciated to Kshs.3,000,000/= by the year 2000. That justifies the increase of fire insurance premium paid from Kshs.800/= in 1983 to Kshs.7,500/= in 1997. Mortgage protection Insurance Premium is based on the outstanding loan balance, age and the medical status of the insured/borrower."* 4. The Plaintiffs pleaded the premiums were "grossly too large" in their letter of 7th November 2003 as Mortgage Protection Premiums of Kshs.42,823.00/=, Kshs.39,574.00/= and Kshs.108,080.00/= were charged even after the loan balance was zero. The Defendant's letter of 25th February 2004 admits that the premium were "based on the outstanding loan balance." If the balance was zero, these premiums should not have been charged. The Defendant then admitted in its 17th November 2003 letter that it "disregarded the premium for Kshs.108,080/= " in its computations because "*the resultant running balance on 25.6.2001 indicates there was no mortgage outstanding.*" 5. It is therefore my finding that the Defendant was contractually permitted to levy professional, legal, valuation, and auctioneer's charges, but only if they were "*properly incurred or paid*” and they were "*incidental to this Charge or the collection of any moneys due*." The Defendant failed to comply with both conditions for reasons that the charges arose from enforcement actions taken while the Plaintiffs were disputing the account and while the Defendant's own records ultimately showed the loan was overpaid and the enforcement was premature and unnecessary. The charges were not incidental to the Charge because no money was actually due and if the Defendant's own recalculation showed the loan was overpaid, then there was no money to collect, and the enforcement charges were unjustified. The Mortgage Protection Premiums were charged after the loan balance was zero, which contradicts the Defendant's own explanation that the same was based on the outstanding loan balance. 6. The Defendant admitted it disregarded one of the premiums because there was no mortgage outstanding, yet it continued to charge other premiums and fees. I find that the Plaintiffs are entitled to a refund of all unauthorized charges, including the legal fees, auctioneers fees, valuation fees and the excessive or improperly applied insurance premiums. **Breach of good faith and proper accounting** 1. The Plaintiffs submitted that the Defendant acted negligently, oppressively and in commercial bad faith and that financial institutions owe a duty to deal fairly and keep accurate records. That the record shows contradictory statements, wrong commencement dates, repeated errors, unauthorized interest adjustments and forced revisions. The Plaintiffs relied on inter alia, the Court of Appeal’s decision in **Fidelity Commercial Bank Limited v Italian Market Kenya Limited [2017] KECA 370 (KLR)** to contend the Defendant failed to exercise its powers lawfully within contractual limits. 2. In **Fidelity Commercial Bank Limited(supra),** the appellate court endorsed the position that *“In exercising its duty of care the paying bank was bound to make such enquiries as might, in given circumstances, be appropriate and practical, where it had, or a reasonable banker would have, grounds of believing that the authorised signatories were misusing their authority for purposes of defrauding their principal or otherwise defeating his true intentions.”* Having observed the Defendant’s conduct through the evidence, I am not persuaded by its argument that if there were errors and/or mistakes in the Plaintiffs’ loan account the mistakes and/or errors were honest and not made negligently or with intention of defrauding the Plaintiff. 3. The errors were too fundamental to be mere "mistakes" because charging interest before a loan is disbursed is not an "honest mistake” but a basic accounting error that a trained banker should never make. These errors appear to have persisted for too long as the monthly interest application continued for 11 years between 1991 and 2003 and it was not a one-off oversight but a systemic failure. The Defendant systematically ignored the contract between the parties as it increased interest rates without notice multiple times which was not a mistake but a pattern of non-compliance. 4. The Defendant continued to demand payments after knowing the loan was overpaid which is evidence of bad faith and not good faith. In my view, the Defendant knew or ought to have known that it was overcharging the Plaintiffs as the Letter of Offer and Charge document were clear considering the Defendant itself drafted it. The Defendant continued to apply unlawful interest rates, continued to levy unnecessary charges, and continued to harass the Plaintiffs even after the loan was overpaid. It appears that the Defendant showed no concern for the financial hardship it was likely causing the Plaintiffs which reveals recklessness on the Defendant’s part. 5. In the end, I find that the Defendant cannot hide behind the "honest mistake" defense. Its conduct was not that of a prudent banker and it was negligent, oppressive and in bad faith.The Plaintiffs' claim for breach of good faith and proper accounting is merited. The Defendant's conduct fell below the standard expected of a financial institution. **Entitlement to general damages, exemplary damages and special damages** 1. The Plaintiff submitted that they are entitled to general damages for severe emotional, psychological and financial hardship as they have endured years of stress, disruption and demand notices based on inflated and unlawful computations. That their matrimonial property was unjustifiably exposed to risk of realization/sale and that medical evidence was submitted demonstrating the direct psychological impact caused by the Defendant’s conduct. 2. In response, the Defendant submitted that general damages are generally not recoverable for breach of contract where special or quantified damages are claimed as well and that this position was fortified by the Court of Appeal in **Kenya Tourist Development Corporation v Sundowner Lodge Limited [2018] KECA 312 (KLR)**. That awarding general damages on top of a liquidated sum constitutes double compensation and furthermore, claims for "embarrassment" and "conversion" were not pleaded with necessary particulars. 3. Whereas it is correct that general damages are generally not recoverable for breach of contract where the Plaintiff has quantified their loss and claimed special damages, the appellate court in ***Kenya Tourist Development Corporation(supra)*** did not abolish general damages for breach of contract entirely but also held that General damages may still be available where the breach causes non-pecuniary loss and nominal damages can be awarded. 4. The Plaintiffs claim Mental distress, embarrassment, breach of statutory, contractual, and fiduciary duty, negligence and/or fraud, loss of opportunity, financial difficulties, sleepless nights and restless days and loss of enjoyment of property. They also produced medical evidence including a report from Langata Hospital which indicates as follows: *"Mr. Zedekiah Achira has been seen as an outpatient at this hospital since the 26th July, 2005. He has attended the outpatient department on many occasions with complaints related to upper respiratory tract infections, dyspeptic symptoms, gastroenteritis, headaches and mild hypertension as well as urinary tract problems."* 1. My assessment of the above medical report is that it does not directly link the Plaintiffs' health issues to the Defendant's conduct. It states he has "mild hypertension" and other conditions, but does not say they were caused by the Defendant’s actions. The report is general and does not mention the stress caused by the loan dispute and I find it to be weak on causation. While it supports the Plaintiffs' claim that they had health issues, it does not prove they were caused by the Defendant's conduct. 2. However, the parties’ banker-customer relationship is fiduciary in nature. The Defendant owed a duty of good faith, care and proper accounting to the Plaintiffs. This duty of care and the fiduciary nature of the relationship provide a basis for awarding damages for non-pecuniary loss. The Plaintiffs have also pleaded negligence and in tort, general damages are clearly recoverable (see **David Kahuruka Gitau & George Kuria v Nancy Ann Wathithi Gitau & Mercy Wangui Ng'ang'a [2016] KEHC 6964 (KLR)]**. 3. The Defendant’s conduct of charging interest before the loan was disbursed, applying interest monthly instead of annually, increasing interest rates without notice and continuing to harass the Plaintiffs after the loan was overpaid is clearly oppressive and breach of the parties’ fiduciary duty. I will award general damages of Kshs.500,000.00/= for breach of this duty. 4. On exemplary damages, I am in agreement with the Defendant’s submission that this requires proof of arbitrary, oppressive, or malicious conduct aimed at profiting (see **Rookes v Barnard [1964] AC 1129** and **Godfrey Julius Ndumba Mbogori & another v Nairobi City County [2018] KECA 702 (KLR)].** However, I will decline to issue this award because the Plaintiffs defaulted from 1984 to 1991 and the default was a significant factor in the debt ballooning. I find that the default justified, to some extent, the Defendant's enforcement actions in the Defendant's errors were the primary cause of the overpayment. 5. I find that the Plaintiffs' own default contributed to the current situation and the Defendant has already refunded Kshs.581,305.22/= and made an offer to refund Kshs.113,454.97/=. The award of general damages is sufficient in the present circumstances. 6. On special damages, the Plaintiff seeks Kshs.6,538,326.04/= based on PW 2’s report for the alleged overpaid amount and Kshs.132,500.00/= being his fees. However, I am in agreement with the Defendant that the probative value of PW2’s evidence is shaky considering he admitted in his testimony that He relied only on documents given to him by the Plaintiffs which documents included the Loan Agreement and bank statements. He never obtained any statement from the Defendant nor sought the Defendant's position before preparing the report. He also never requested the Defendant's internal records, including loan ledgers, interest calculation sheets, or correspondence to ascertain the true position. 7. PW 2, who stated that he was on expert witness did not provide the independent assistance to the court by way of objective, unbiased opinion in relation to matters within his expertise. As submitted by the Defendant, Mativo J., (as he was then) in **Wang'ondu v Ark Ltd [2016] KEHC 3449 (KLR)** held as follows with regards to expert witnesses and their testimonies: - *25. It is my view its correct to state that a court may find that an expert’s opinion is based on illogical or even irrational reasoning and reject it. A judge may give little weight to an expert’s testimony where he finds the expert’s reasoning speculative or manifestly illogical. Where a court finds that the evidence of an expert witness is so internally contradictory as to be unreliable, the court may reject that evidence and make its decision on the remainder of the evidence. The expert’s process of reasoning must therefore be clearly identified so as to enable a court to choose which of competing hypotheses is the more probable.* *26. It is a trite principle of evidence that the opinion of an expert, whatever the field of expertise, is worthless unless founded upon a sub-stratum of facts which are proved, exclusive of the evidence of the expert, to the satisfaction of the court according to the appropriate standard of proof. The importance of proving the facts underlying an opinion is that the absence of such evidence deprives the court “of an important opportunity of testing the validity of process by which the opinion was formed, and substantially reduces the value and cogency of the opinion evidence”. An expert report is therefore only as good as the assumptions on which it is based.* *27. An expert gives an opinion based on facts. Because of that, the expert must either prove by admissible means the facts on which the opinion is based, or state explicitly the assumptions as to fact on which the opinion is based.* 1. It therefore follows that his findings cannot be relied upon in arriving at the sum that the Plaintiffs overpaid or the Defendant overcharged. In **HFC Ltd (Formerly Housing Finance Company of Kenya Ltd) v Njenga (Suing as the Administrator of the Estate of Benson Njenga Ndindi - Deceased) [2026] KEHC 9062 (KLR),** the court(Dr. Mugambi J.,) was faced with a similar case where the expert report was based on incomplete data, the expert did not seek the Defendant's position or records, the report lacked the requisite probative value and the specific quantum could not be sustained. Rather than dismiss the claim entirely, the court ordered that “*The Respondent shall nonetheless be entitled to a refund of any amounts found to be due to her upon a recomputation of the loan account in accordance with the findings of this court. To that end, the parties shall, within 14 days of the date of this judgment, agree upon and jointly appoint a neutral and qualified accountant for the purpose of taking accounts and ascertaining the quantum of any overcharge.”* 2. I find that the above position is just and fair to the parties and I will equally apply the same reasoning. I decline to award the sum of Kshs.6,538,326.04/= based on PW2’s report and Kshs.132,500.00/= as his fees considering his report is flawed and has not been of assistance to the court. However, I uphold the finding of liability of unlawful interest variation, penalty interest and unauthorized charges and order a fresh account to determine the correct quantum. A neutral accountant will also be appointed to take accounts. **Conclusion and Disposition** 1. In the upshot, I find that the Plaintiffs have largely proved their case on a balance of probabilities. I allow their suit in the following terms: - 2. **The Defendant is ordered to pay to the Plaintiffs Kshs.500,000.00/= as general damages for breach of fiduciary duty and oppressive conduct.** 3. **The Defendant is ordered to pay to the Plaintiffs Kshs.113,454.97/= being the amount admitted by the Defendant as due and owing.** 4. **A fresh account shall be taken to determine the correct quantum of any overpayment, in accordance with the guidelines set out in this judgment.** 5. **The parties shall, within Fourteen (14) days from the date of this judgment, agree upon and jointly appoint a neutral and qualified accountant for the purpose of taking accounts.** **In default of agreement, either party shall be at liberty to write to the Chairperson of the Institute of Certified Public Accountants of Kenya (ICPAK) for the nomination of a suitable person.** **The accountant's fees shall be shared equally between the parties.** 6. **The accountant shall file his or her report with this court within Forty-Five (45) days of the date of appointment and shall be guided by the specific findings of this court as set out in this judgment.** **Upon filing of the report, the court shall make further orders giving effect to the findings therein.** 7. **The sums in orders 1) and 2) above shall attract interest at court rates from the date of this judgment until payment in full.** 8. **The Defendant shall bear the costs of this suit.** **DATED SIGNED and DELIVERED virtually at MACHAKOS this 30TH DAY OF JULY 2026** **............................................................................** **J.W.W. MONG’ARE** **JUDGE** **IN THE PRESENCE OF:-** 1. N/A for the Plaintiff. 2. N/A for the Defendants. 3. Amos- Court Assistant