[2021] KEMSET 660 (KLR)

Canva Trading Kenya Ltd Mombasa v Omae (Claim 26 of 2021) [2021] KEMSET 660 (KLR) (Civ) (12 November 2021) (Judgment)

Neutral citation: [2021] KEMSET 660 (KLR)

Republic of Kenya

In the Micro and Small Enterprises Tribunal

Civil

Claim 26 of 2021

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

November 12, 2021

Between

Canva Trading Kenya Ltd Mombasa

Claimant

and

Fredrick Augustus Omae

Respondent

Judgment

Introduction 1. This claim dated June 16, 2021, was filed under certificate of urgency by the claimant seeking for various orders against the respondent. The matter though filed under a certificate of urgency was basically a claim that ought to have come under the normal filing of claims and not under a certificate of urgency.

2. The claimant describes itself as a micro and small microfinance entity that is in the business of giving out SME loans to business persons. On the other hand, the respondent is described as a businessman operating in Mombasa.

The Claim 3. The claimant states in their claim that the respondent by an application dated December 10, 2019 applied for a loan of Kshs 30,000 from the claimants and which was to be paid back in one month, on the January 11, 2020, with an interest of 20% per month.

4. In the loan form filled by the respondent at the time of the loan application, the respondent was guaranteed by one Mr Daniel Okode. The respondent also placed his TVset, make LG and 2 fridges all worth Kshs 60,000 as security for the loan.

5. In the application form, the respondent also indicated that he had previously borrowed 5 times from the claimant sums of Kshs 20,000 and Kshs 30,000 four times and repaid the same successfully.

6. The claimant averred that as at the time of filing the claim on June 16, 2021, the respondent had not made any repayments to the claimant despite having promised to do so at the time of requesting for the loan. The loan had since accrued to Kshs 117,000 as at the time of filing the claim. 7. The claimant sought in their claim for orders that would be summarised as:i.The tribunal to trace the respondent whose place of business is well known; andii.For the respondent to pay back to the claimant the full outstanding amount of Kshs 117,000.

The Response 8. In a response filed on the September 27, 2021 through their advocate Lawrence Obonyo Legal Advocates, the respondent stated that the averments by the claimant at paragraph 1-5 of the claim were generally true and reiterated that he had previously accessed the claimants loan facilities 5 times and repaid the same without much hustle from the claimant.

9. He averred that the claimant had taken to harassing him after he took the current facility despite his efforts to pay and he had thus put the repayment plans on hold to protest the same. He attached his Mpesa statement showing payments made on January 27, 2020, February 2, 2020 and March 5, 2020 for Kshs 10,000, 2,000 and 5,000 respectively. This totalled Kshs 17,000. He added that he had made a payment of Kshs 2,000 to a Mr Brian Odhiambo, who he alleged is the claimant's accountant in late 2020, making his total payment Kshs 19,000. He was willing to make the final payment of Kshs 9,000 to clear his debt with the claimant.

10. He denied that he had been evading the claimant but instead had been forced to close down his business due to the adverse effects of Covid 19 but was willing to meet his obligations if the claimant stopped harassing him.

Analysis 11. It is clear from the pleadings herein that the parties entered into an agreement for the claimant to advance the respondent a sum of Kshs 30,000 on December 10, 2019 and which was to be repaid back on January 11, 2020 with an interest of 20%. From the evidence of the respondent, this sum was not repaid as scheduled but a partial payment was made on the January 27, 2020 of Kshs 10,000. Another sum of Kshs 2,000 was repaid on the February 2, 2020 and a payment of Kshs 5,000 made on the March 5, 2020. These three payments are supported by the Mpesa statement produced by the respondent. Though he claims he made another payment of Kshs 2,000 to the claimants officer in late 2020, no evidence to support the same was produced.

12. While the respondent admits borrowing Kshs 30,000 and repaying Kshs 19,000, he also avers that the sum owing is only Kshs 9,000 and not Kshs 11,000, exclusive of interest. The computation by the respondent is clearly erroneous. From the principal sum, even if the tribunal was to accept that he paid a further Kshs 2,000 to the claimants officer, then the balance would be Kshs 11,000 and not Kshs 9,000. In the absence of any evidence however, we find that the payment of Kshs 2,000 is not proved.

13. Be that as it may, and based on the evidence before the tribunal, it is clear the sum owing on the principal sum advanced to the respondent is Kshs 13,000 and we so find.

Interest. 14. Courts and tribunals are slow to interfere with contracts freely entered into by parties unless it can be demonstrated that one party took unlawful advantage of the other to exact an illegal benefit. From the respondents own assertions, the parties had dealt before without any problems and at the time of applying for the current facility, there was no undue pressure or duress from the claimant to place him at a disadvantage while applying and receiving the loan.

15. Part of the reason the respondent advanced as to why he stopped paying was the unreasonable interest the claimant had sought from him. He claimed the accrued interest was unconscionable and would amount to exploitation. This caution and fear is not unreal and this matter has been confronted previously in the adjudication of disputes.

16. In Pius Kimaiyo Lagat v Co-operative Bank of Kenya Limited [2017] eKLR, again 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”

17. Luckily for the respondent in the present case, the only issue was the exorbitant interest he alleged was charged on the balance of his loan and not the additional penalties stated in the Court of Appeal decision.

18. The tribunal cannot however close its eyes to a clear violation of the law when manifest in a contract and neither can it order the enforcement of an illegality. The tribunal thus takes judicial notice of the fact that for any registered entity that advances loans and credit facilities to the public, then the entity must abide by the clear provisions of the law, in this case the Banking Act. Where the court or tribunal realises that the express provisions of the law were violated, then it will interfere with the terms of the contract to rectify the anomaly.

19. This tribunal has previously so held in among others the matter of Canva Trading Company Limited v Danson Kamwega Gichuki in Mombasa MSET No 11 of 2020, where the tribunal followed with approval the reasoning in National Bank of Kenya Ltd v Pipeplastic Sankolit (K) Ltd Civil Appeal No 95 of 1999. The Court of Appeal in that case 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...”

20. We see no reason to depart from that direction in the present case.The tribunal cannot therefore overemphasis that the interest rate of 20% per month charged was illegal, oppressive, unconscionable and above the Central Bank rates applicable for the period the loan was advanced of 13% per annum. This is based on the provisions of section 44A of the Banking Act, popularly known as the in duplum rule.

21. In applying this rule, the Court of Appeal in Kenya Hotels Ltd v Oriental Commercial Bank Ltd (Formerly Known as Delphis Bank Limited) [2019] eKLR made a determination that interest ceases to accumulate upon any amount of loan owing once the accrued interest equals the amount of loan advanced.

22. The amount of loan advanced was Kshs 30,000. This sum had accrued interest of Kshs 325 as at January 11, 2020 when it was initially due for payment. The respondent ought to have paid Ksh. 30, 325 had he paid on January 11, 2020 (Ksh. 30,000 *13/100*30 days/365 days). He made the first payment on January 27, 2020. By that date, the amount owing was Kshs 30,491. 50 (Kshs 30,000*13/100*46 days/365 days). On paying the sum of Kshs 10,000, the total balance owing became Kshs 20,491. 50.

23. The respondent made further payments on February 2, 2020 of Kshs 2,000. By this time the balance was Kshs 20,535. 30. The balance outstanding therefor became Kshs 18,535. 30. The last payment was made on March 5, 2020 of Kshs 5,000. The principal sum then owing was Kshs 18,739. 90 (Kshs 18,535. 30*13/100*31/365).The payment thus reduced the balance to Kshs 13,739. 90

24. As already stated herein above, the sum due and owing as at June 16, 2021 when the claim was filed is Kshs 16,020. 35 (13,739. 90*13/100*466 days /365 days).

25. We therefore find that the applicable principal sum as at the time of filing the claim was Kshs 16,020. 35. Interest in the claim is 13%per annum.

Determination. 26. We thus find that the proper claim at the time of filing the suit ought to have been Kshs 16,020. 35 and not Kshs 117,000 as sought in the claim.

27. We also determine with certainty that the applicable rate of interest is 13% per annum.

Orders 28. We therefore order as follows:i.Judgement is entered for the claimant for the principal sum of Kshs 16,020. 35. ii.Interest is awarded on the above sum at 13% per annum from June 16, 2021 till payment in full.iii.The claimant is awarded the costs of the claim assessed at Kshs 8,000.

DATED AT NAIROBI THIS 12TH DAY OF NOVEMBER, 2021J. BETT........................................[CHAIRMAN]R. KATINA........................................[VICE-CHAIR]J. WERE........................................[MEMBER]A. GIKUYA........................................[MEMBER]A. KIBET........................................[MEMBER]Judgement delivered virtually in the presence of:1. Claimant, Eunice Okal2. Respondent’s Advocate, Ms Wambani3. Court Assistant, Isaac Kapalikinei3. Court Assistant, Zulekha