[2022] KEMSET 230 (KLR)

Canva Trading Kenya Ltd Mombasa v Nyambega (Tribunal Case 21 of 2021) [2022] KEMSET 230 (KLR) (22 April 2022) (Judgment)

Neutral citation: [2022] KEMSET 230 (KLR)

Republic of Kenya

In the Micro and Small Enterprises Tribunal

Tribunal Case 21 of 2021

J.Bett, Chair, R.Katina, J.Were, A Gikuya & A Kibet, Members

April 22, 2022

Between

Canva Trading Kenya Ltd Mombasa

Claimant

and

Hall Nyambega

Respondent

Judgment

1. This action was commenced on the May 5, 2021 when the claimant, CanvaTrading Kenya Ltd Mombasa filed the claim against the respondent herein, Hall Nyambega. The gist of the claim was that the respondent was indebted to the claimant to the tune of Kshs 240,000. 00 at the time of filing the claim.

2. The respondent was served with the claim and appointed Wamotsa Wangila Advocates to represent him in the matter. The advocate filed a response to the claim and a counterclaim against the claimant whose gist was the return to the respondent his original national identity card (ID) and the signed blank and undated cheques issued by CFC Bank and damages for the alleged unlawful detention of his ID card and blank cheques.

3. More critically though, the respondent raised objections about the jurisdiction of the tribunal to hear and determine the claim as presented by the claimants herein, contending that it was not one of those matters anticipated by section 55(1) of the Micro and Small Enterprises Act.

4. The tribunal directed that the issue of jurisdiction be canvassed first before the main claim could be heard and determined in the event that the tribunal ruled against the respondents preliminary objection. Parties were directed to file submissions on the same and the tribunal made a reasoned ruling on the November 25, 2021 wherein the preliminary objection was dismissed with costs to the claimant.

5. Subsequent to the ruling dismissing the preliminary objection, the claimant instructed the firm of Gichana Bwómwando Advocates to act for them in this matter.The main claim was then set down for hearing and proceeded on the January 20, 2022 wherein each party called one witness, Ms Eunice Okal, the director of Canva Trading Company Ltd, the claimant herein and Mr Hall Nyambega, the respondent herein.

Claimants Evidence. 6. The claimants witness testified that the respondent approached the claimant seeking for a loan facility on the November 8, 2019. The loan applied for and disbursed by the claimant was Kshs 100,000. 00. The respondent filled the standard loan agreement form of the claimant and also attached his passport photograph and a copy of his ID.

7. In the form, the respondent committed his samsung fridge worth Kshs 40,000. 00, microwave worth Kshs 15,000. 00, 32 Inch TV worth Kshs 35,000. 00, water dispenser worth Kshs 15,000. 00, gas cooker worth Kshs 30,000. 00, laptop worth Kshs 40,000. 00 and furniture worth Kshs 100,000. 00. The loan form is dated and signed by the respondent.

8. It was her further evidence that the claimants officer named Brian Okello went to the respondents house and identified the items that were pledged as collateral for the loan requested. By twist of fate, the said Brian Okello now works for the respondents employer, also a credit company.

9. The respondent allegedly required more money than the Kshs 100,000. 00 he was advanced but the claimant limited the sum based on the assessment of the respondents ability to repay the sum. The loan was repayable in one month, with interest of 20%. The loan was thus due for repayment by December 9, 2019. The respondent however did not commence the repayments until February, 2020 by which time the loan had accrued interest of 20% per month of the principal sum. This in essence meant the loan had accrued interest of Kshs 40,000. 00 by February, 2020.

10. In February, 2020, the respondent paid Kshs 30,000. 00 and by the time of the claim being filed, he had paid Kshs 100, 000. 00. Interest had however accrued to Kshs 240,000. 00 in the same period and this is what the claimants sought for the tribunals intervention to recover from the respondent.

11. In cross examination, the witness testified that she is a director of the claimant company. She however did not produce any certificate of incorporation to confirm the registration status of the company or show that she is the managing director of the company. She either produced any copy of resolution or authority to represent the company.

12. She reiterated that the respondent was given the loan in cash, Kshs 100,000. 00 and signed the loan forms. She is the one who disbursed the cash at First Community Bank. This was not the first loan from the claimant to the respondent but the second. She confirmed that the respondent had repaid back Kshs 100,000. 00 out of the sums due.

13. Prior to suing the respondent whom she knew very well, she had called him and sent text messages but at some point, the respondent stopped responding to the calls and messages.

Respondents Evidence 14. In his evidence, the respondent confirmed that she is well known to Ms Eunice Okal as they worked together at Platinum Credit before being laid off. It is then that Ms Okal set up the current business.

15. In June, 2019, he had challenges servicing a facility he had taken and his car was almost sold by auction for the default. He approached the claimant to buy off the loan. The amount that he then needed was Kshs 370,000. 00 owed to Springboard.

16. It was his averment that when he approached the Ms Okal, she agreed to advance to him a soft loan of Kshs 100,000. 00 and the sums were not from the claimant company. He had fully repaid the sums.

17. He denied that Mr Brian Okello visited his house or that he pledged the items listed in the loan form as he does not own such assets. He admitted however giving the claimants signed blank cheques as security for the loan advanced.

18. In cross examination, he reiterated that he left 12 blank cheque leaves. This was security for a facility of Kshs 317,000. 00. The understanding then was that Ms Okal was to take over the loan owed by the respondent to Springboard and pay on his behalf. He confirmed that he left his ID with the claimants and he had not received it back since. He also confirmed that cheques become stale if not cashed within 6 months.

Issues For Determination1. Whether the tribunal can revisit the preliminary objection on which it had made a ruling previously.2. Whether the respondent was advanced any loan facility and if so, whether it was from the claimant or from the witness in her personal capacity as a friend.3. If the above if in the affirmative, whether the sum loaned out was repaid back and what sums are outstanding if any.4. Is any interest payable and outstanding on the said principal sum.5. Has the respondent proved any of the matters in the counterclaim.6. Who bears the costs of the claim.

Analysis Of The Evidence And Determination Of Issues 19. I would wish to first dispense with the issue of the preliminary objection raised by the respondents in their response to the claim and reiterated during the final submissions.

20. The matter was fully addressed by the tribunal in its ruling on the same dated November 25, 2021. The issue as raised again during the trial and also the final submissions by the respondents advocate was therefore moot and res judicata. In that regard, as the matter had been fully dispensed with during the ruling, we shall not revisit the same in this judgement save to reiterate that the tribunal had jurisdiction to handle dispute as envisaged under the Micro and Small Enterprises Act.

21. That stated, on the second issue, it is not in dispute from the evidence that the respondent received Kshs 100,000. 00 from the claimants witness. What is disputed is whether the sums advanced were a soft loan personal to the claimants witness or the same was advanced from the claimant company.

22. Having analysed the evidence on record, the critical question is thus why the respondent filled the claimants lon form and executed the same, providing both his ID and passport photograph. It is noteworthy that the respondent is not a lay person in the credit business world as he worked with claimants witness previously at Platinum Credit and even after their departure from the said company, went ahead to work for another micro finance. He was unable to have the said company redeem its facility from his previous lender and approached the claimant to assist take over and repay the loan on his behalf.

23. I have no doubt therefore that by signing the loan forms, even if blank, he expected them to be used to advance him the credit facility that he much coveted as his motor vehicle was on the brink of being auctioned for the default on his repayments.

24. I am not persuaded therefore that the respondent received a soft loan from Ms Okal but he was well aware that he was receiving a loan facility from Canva Trading Limited and not from Ms Eunice Okal. Receipt of the loan facility must have therefor been accompanied with the terms and conditions set out in the loan agreement.

25. It is trite law that parties are bound by the terms of a contract freely entered into and the courts or tribunals will only interfere in case of illegality or breach of acceptable standards and norms used in the specific industry. In the present case the loan agreement clearly stated that the loan was lent out at an interest. Therefore for the respondent to expect that the company gave him a friendly loan as alleged was stretching it too far.

26. We make a finding that the respondent was advanced the loan by the claimant and not the witness as alleged, their previous acquaintances notwithstanding.

27. On the fourth issue, this tribunal has previously been persuaded to hold that whereas it is not for the court to rewrite a contract for the parties, where a contract between parties is exploitative, courts (and tribunals) will not be shy to interfere. This was determined by the Court of Appeal in the case of National Bank of Kenya Ltd v Pipeplastic Sankolit (K)Ltd Civil Appeal No 95 of 1999. The court held as follows:“A court of law cannot rewrite a contract with regard to interest as 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 procedural abuse...”

28. We have perused through the statement of claim, the attached application form which contains the loan agreement. The relevant part is paragraph 6 titled “Loan Agreement” with the following relevant clauses:“(1)In pursuance of the said agreement and in consideration of the promises of the agreement and of the loan application form duly filled by the borrower and whose details have been duly approved by the lender and annexed as a schedule hereto, the lender hereby advancesthe borrower the sum of Kshs 100,000/= (hereinafter referred to as the loan amount receipt whereof hereby acknowledged.(2)The loan amount is subject to interest being charged at a flat rate of 20% per month.(8)I hereby authorise Canva Trading Ltd to deduct the fee from the loan request and disburse the balance.”

29. The agreement was signed by respondent on November 9, 2019. Our plain reading of the agreement is that the respondent was bound to pay 20% interest on the loan per month. This means that unless the respondent chose to clear the loan in the first month in full, the same would continue to attract interest of 20% per month. However, on the face of the loan agreement and loan application, we are unable to find the time limit of the defaulting party’s’ interest rate accrual. We also take note that the interest on the principal sum has increased exponentially and stood at Kshs 240,000/= against the principal sum of Kshs 100,000/= in 18 months, the payments done by the respondent notwithstanding.

30. We hold the view that whereas the parties are bound by their agreements and terms thereto, such terms should apply in accordance with the law and where it is determined to be unfair, unconscionable and oppressive, we should not hesitate to re-state the law so as to protect the interest of the parties and by extension advance the public interest.

31. In Pius Kimaiyo Lagat v Co-operative Bank of Kenya Limited [2017] eKLR, the Court of Appeal was confronted with a related challenge and ruled thus:“There is a perennial vexing nightmare for borrowers who take a relatively small loan from a lending institution, but few years down the line, the institution drops a bombshell of a demand for the immediate payment of a colossal sum, literally bankrupting the borrower, if not confining him/her to a hospital bed due to depression. The main bones of contention are invariably; uncertainty of lending terms and documentation, fluctuating rates of interest, penalty interest, default charges, interests on arrears, additional interest, commissions, bank charges, Bank statements or lack of them, among others which may or not have been part of the written contract”

32. We therefore find that the interest charged on the respondent’s loan without clarity on time limit upon the determination that the loan is non-performing is unmerited. In the case of Danson Muriuki Kihara v Amos Kuthua Gatungo [2012] eKLR, the court addressed a related issue thus:-“the plaintiff/appellant filed a claim for Kshs 40,000/=plus interest at 50% per month. The matter proceeded to full hearing and the learned trial magistrate entered judgement for Kshs 40,000/= plus cost and interests at court rates. The appellant appealed against the judgement on ground that the interest payable was reduced from 50% per month to court rates. The court held that the interest rate of 50% was unconscionable and upheld the decision of allowing interest at court rates.”

33. Thus, clearly showing that the court can interfere even where parties have agreed on a rate of interest as long as it is shown that the rate is illegal, unconscionable or oppressive. We therefore find that the parties were at liberty to agree on the interest rate chargeable for a determinable period of time and that once the loan is non performing, it shall be subject to the limitations set out under the in duplumrule.

34. We therefore cap the interest on the loan to 13% which was the prevailing rate at the time the loan was advanced to the respondent. In order to make a just determination of this issue, the tribunal had to rely on the principles of lending by financial institutions drawn from section 44A of the Banking Act which provides statutory application of the in duplum rule. For clarity, we cite the Court of Appeal in Kenya Hotels Ltd v Oriental Commercial Bank Ltd (Formerly Known as Delphis Bank Limited) [2019] eKLR, which stated"the rule is to the effect that interest ceases to accumulate upon any amount of loan owing once the accrued interest equals the amount of loan advanced...’’

35. It was observed by the Court of Appeal that the principle of in duplum has been applied by the courts with reasonable degree of consistency.

36. Having so determined, then it behoves us to provide clarity on what would be the sums due to the claimant. The sums due will thus be the principal sum advanced to the respondents with the interest capped at 13% and the same subject to a capping in absolute terms of Kshs 100,000. 00 in order to ensure compliance with the law.

37. The respondent wad advanced Kshs 100,000. 00 on November 9, 2019 and was due to pay back within one month. He did not pay any sums until February, 2020. The evidence did not bring out clearly when the other sums were paid but it was agreed by both parties that the respondent had paid Kshs 100,000. 00.

38. Considering the above, we therefore make a finding that accrued interest as at May, 2021 when suit was filed was Kshs 19, 500. 00 (13/100 * 100,000. 00 * 18/12=19,500). The total sums due would thus be Kshs 119,500. 00. Having paid Kshs 100,000. 00, the balance was thus Kshs 19,500. 00.

39. Our further finding is therefore that the claim should have been for Kshs 19,500. 00 that was due and outstanding as at May, 2021. We proceed to enter judgment for this sum against the respondent accordingly.

40. On the counterclaim, the respondents evidence is wholly uncontroverted. The claimants witness did not rebut the assertions by the respondent that she had the respondents ID. Noting the centrality of the ID in the day to day operations of the citizens of this country, including potential criminal sanctions, there was no reasonable basis for the claimant to hold on to the respondents ID.

41. In that regards, it lends itself to us to direct that the ID be returned to the respondent forthwith as the claimant already had sufficient collateral in the property listed in the loan form.

42. Finally on the issue of the damages for the unlawful and illegal retention of the respondents id, there was need for the respondent to demonstrate the nature and extent of loss suffered. Damages are not awardable where the loss has been sufficiently demonstrated to assist the court both ascertain and asses the loss with clarity. The prayer is thus for dismissal, which we hereby do.

43. On the matter of costs, we note that both parties have succeeded partially and also been unsuccessful in some of the prayers sought. We deem it just therefore that the claimant is therefore entitled to only half the costs, which we assess at kshs 15,000.

44. The orders that we issue are as follows:a.The claimants cause succeeds in part to the extent the sum due as at May, 2021 is ascertained at Kshs 19,500. 00b.The respondents prayer for the return of his ID is allowed and the same to be returned to him forthwith.c.The sum awarded under (a) above shall attract interest at 14% from the date of filing until payment in full.d.The claimant is awarded half the costs and the same are assessed at Kshs 15,000. 00. Orders accordingly.

ISSUED VIRTUALLY THIS 22ND DAY OF APRIL, 2022. Dr J BETT ...........................[CHAIRMAN]R KATINA .........................[VICE-CHAIR]Hon J WERE.......................[MEMBER]A GIKUYA…….................[MEMBER}A KIBET.............................[MEMBER]JUDGMENT DELIVERED VIRTUALLY IN THE PRESENCE OF:Mr Daniel Wamotsa, Advocate for the respondentMs Eunice Okal, claimantMr Denis Kibet –tribunal assistantMs Joy Kendi –tribunal assistantMs Zulekha Abdullahi –tribunal assistant