https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/7209

Ndungu v Muriu & another (Civil Appeal E1162 of 2024) [2026] KEHC 7209 (KLR) (Appeals) (20 May 2026) (Judgment) Neutral citation: [2026] KEHC 7209 (KLR) Republic of Kenya In the High Court at Nairobi (Milimani Law Courts) Appeals Civil Appeal E1162 of 2024 AN Ongeri, J May 20, 2026 Between Leah Ndungu Appellant and Catherine Muriu 1st Respondent Salome Muthoni Muiru 2nd Respondent (Being an Appeal from the Judgment of Hon. B. M. Cheloti (PM) in Milimani CMCC No. 75 of 2020 delivered on 9/9/2024) Judgment 1.The appellant filed Milimani CMCC No. 75 of 2020 seeking a sum of Ksh. 1,000,000 plus interest of Ksh. 280,000 per month from November 2018 to May 2019. 2.The respondents filed a defence dated 3/10/2023 in which they denied the appellant’s claim. 3.The appellant’s case was that she entered into a contract with the 1st respondent wherein the 1st respondent agreed to trade Ksh. 1,000,000 on behalf of the appellant in the forex exchange market and to pay the appellant Ksh. 280,000 each month from 30th October 2018 to May 2019. 4.The appellant paid the 1st respondent the money in two instalments. The 2nd respondent received the money on behalf of the 1st respondent and handed it over to her. 5.The 1st respondent did not remit the agreed monthly interest eight months into the agreement and the appellant terminated the agreement. 6.The 1st respondent said she warned the appellant that trading at the forex exchange was risky and further that she had lost her own funds. 7.The 2nd respondent said she handed over the funds to the 1st respondent but she did to know what the money was intended for. 8.The trial court found that the parties entered into a valid forex exchange investment agreement 9.The trial court took judicial notice that one can either make money or loose money at the forex exchange market. 10.The trial court also found that the 1st respondent was not a registered licensed broker. 11.The trial court found that the unpredictability experienced in the forex exchange market led to the loss of the appellant’s investment and that the situation was beyond the 1st respondent’s control. 12.The trial court dismissed the appellant’s suit and directed that each party bears its own costs of the suit. 13.The appellant has appealed against the said judgment on the following grounds;i.That the Honourable Court erred in law and in fact in dismissing the suit.ii.That the Honourable Court erred in law and in fact in determining that the unpredictability experienced in the forex exchange market led to the plaintiff's investment.iii.That the Honourable Court erred in law and in fact in determining that the loss was beyond the 1st defendant's control.iv.That the Honourable Court misdirected itself and considered extraneous and irrelevant factors.v.That the Honourable Court misdirected itself in not taking into account the terms of the contract agreement which provided for interest payments and not profits.vi.That the Honourable Court erred in law and fact by failing to consider that even where losses are incurred they are never one hundred per cent.vii.That the Honourable Court erred in law and fact by failing to consider the appellant's submissions.viii.That the Honourable Court erred in law and fact by failing to consider that even where losses are incurred they are never one hundred per cent.ix.That the Honourable Court failed to appreciate the appellant's weighty evidence in totality. 14.The parties filed written submissions as follows; The appellant submitted that she deposited kenya shillings one million in two equal installments into the second defendant’s cooperative bank account for the explicit purpose of investing in the foreign exchange market. 15.In return, the first respondent committed to a structured payment plan to return an interest amount of kenya shillings 280,000 per month to the plaintiff. 16.While the appellant fulfilled her obligation by disbursing the principal funds, the first respondent defaulted on the agreed terms, prompting the appellant to file suit in February 2020 seeking recovery of the principal loan, accrued monthly interest, and costs. 17.The trial court ultimately dismissed the appellant's suit on September 9, 2024, following delays primarily caused by the need for substituted service on the untraceable second defendant. The trial Magistrate took judicial notice of the volatile nature of forex trading, concluding that the unpredictability of the market caused the loss of the investment and that this situation was entirely beyond the first respondent’s control. 18.Dissatisfied with this outcome, the appellant filed an appeal before the High Court of Kenya at Nairobi. 19.In the submissions supporting the appeal, the appellant argues that the trial Magistrate fundamentally erred in law and fact by treating the contract as a profit-sharing venture rather than a fixed-interest loan agreement. 20.The appellant underscores that the terms explicitly guaranteed monthly interest payments rather than speculative profits, meaning the plaintiff never agreed to assume the risk of market fluctuations. 21.By failing to hold the first defendant accountable to these explicit terms, the lower court effectively re-wrote the contract for the parties, which directly violates established Kenyan jurisprudence dictating that courts must enforce valid contracts freely entered into unless fraud, coercion, or undue influence are proved. 22.The appellant further points out that the respondent admitted to the existence and subsequent breach of the contract, yet the trial court excused the non-performance by relying on abstract market conditions without requiring any documentary evidence, transactional records, or bank accounts to prove how the funds were actually lost. 23.Furthermore, the appellant challenges the lower court's shifting of the burden of proof, noting that under the Evidence Act, the defendant was legally obligated to prove the facts of the alleged market loss on a balance of probabilities. 24.The appellant contends that the first respondent failed to provide adequate testimony or expert witness accounts to establish that the loss was genuinely beyond her control, meaning the burden was never discharged. 25.The submissions emphasize that as a self-proclaimed professional "trader," the respondent owed a strict fiduciary duty of utmost good faith, trust, and candor to the appellant. 26.Because forex transactions always retain some residual value and a professional trader would typically stop or consult their principal rather than wiping out an account entirely, the total dismissal of the suit is presented as a gross miscarriage of justice. 27.Finally, the appellant raises concerns regarding consumer protection and unjust enrichment, asserting that the respondent falsely misrepresented her capacity to generate a 28% monthly return while delivering a complete loss. 28.The appellant warns that validating the lower court's judgment would open a dangerous pandora's box, signaling to the public that individuals can casually saunter away from strict contractual obligations in Kenya by merely citing unfavorable business conditions. 29.The appellant urged the appellate court to enforce the contract and find in favor of the appellant. 30.The respondent submitted that their dispute stemmed from a written contract dated October 25, 2018, where the appellant provided the funds for the 1st respondent to trade on her behalf in the foreign exchange market. 31.The respondents resisted the suit through a defence and counterclaim, asserting that the 1st respondent traded in a personal capacity rather than as a registered investor, had lost her own personal funds when the trading account blew up, and sought to have the agreement declared a nullity. 32.The appellant ultimately terminated the contract after eight months without receiving any remittances. 33.In response to the appellant's memorandum of appeal, which contends that the trial court erred by dismissing the suit, taking judicial notice of forex market volatility, and treating the contractual "interest" as business "profit", the respondents raise several key legal arguments. 34.First, they raise a preliminary objection arguing that the entire appeal is incompetent and defective, and should be struck out with costs. 35.They submitted that the record of appeal served upon them lacks the respondents' statement of defence and counterclaim. 36.Citing order 42 rule 13(4) of the Civil Procedure Rules alongside landmark jurisprudence from the Supreme Court and High Court, they argue that the omission of primary pleadings deprives the appellate court of its jurisdiction to properly re-evaluate the case, rendering the appeal fundamentally flawed. 37.Substantively, the respondents defend the trial magistrate's decision to take judicial notice of the inherent volatility and unpredictability of forex trading. 38.They argue under section 60(1)(o) of the Evidence Act that the risky nature of the financial markets constitutes a matter of general notoriety that requires no formal proof. 39.They emphasize that the appellant failed to produce any evidence to dispute this notorious fact during proceedings. Connected to this market volatility, the respondents argue that the investment contract was effectively frustrated. 40.Relying on the Court of Appeal's multi-factorial framework for the doctrine of frustration, they contend that the complete collapse of the trading account was an external, unpredictable event entirely beyond the 1st Respondent's control, occurring without her fault or blame, which rendered further performance of the contract impossible. 41.Finally, the respondents oppose the appellant's argument that the trial court erroneously equated the term "interest" with "profit". 42.They assert that the appellant did not advance a commercial loan or credit facility to the respondents, which would legally justify "interest" as a financial charge under the Income Tax Act. 43.Instead, pointing to various statutory definitions within the Transfer of Businesses Act, the Investment Promotion Act, and the Capital Markets Regulations, they maintain that the transaction was strictly a business investment. 44.Consequently, they argue that the projected 28% monthly return was entirely dependent on generating earnings from the foreign exchange market, meaning the ultimate goal was a share of business profits, which carries an inherent financial risk of capital loss. 45.The respondents therefore urged the appellate court to uphold the lower court's findings and dismiss the appeal. 46.The issues for determination in this appeal are as follows;i.Whether the appeal is fundamentally defective, incompetent, and fit for striking out due to the omission of the respondents’ statement of defence and counterclaim from the record of appeal.ii.Whether the trial court erred in law and fact by taking judicial notice of foreign exchange market volatility.iii.Whether the doctrine of frustration applies to discharge the first respondent from her contractual obligations due to the absolute collapse of the trading account.iv.Whether the trial court erred by misinterpreting the explicit terms of the contract.v.whether the first respondent breached her fiduciary duty to the appellant by failing to demonstrate how the principal sum was entirely lost. 47.In resolving the first issue, this court evaluates the preliminary objection raised by the respondents concerning the completeness of the record of appeal. 48.The respondents have urged the court to strike out the appeal, citing the omission of their statement of defence and counterclaim as a fatal procedural defect that contravenes order 42 rule 13(4) of the Civil Procedure Rules and deprives the court of its jurisdiction. 49.While the respondents correctly point out that primary pleadings form the backbone of an appeal record, contemporary Kenyan jurisprudence emphasizes substantial justice over rigid technicalities. 50.The court must assess whether there is sufficient material on record to determine the dispute and whether prejudice has been occasioned. 51.The trial court's judgment, the certified proceedings, and the detailed written submissions are fully present, the substance of the respondents' lower court defence is explicitly clear. 52.To summarily strike out the appeal for a clerical omission that causes no insurmountable prejudice would defeat the overriding objectives of justice. 53.The preliminary objection is therefore dismissed, and the appeal shall be determined on its substantive merits. 54.Turning to the second issue, the appellant challenges the trial magistrate’s decision to take judicial notice of forex market volatility under section 60 of the Evidence Act as the sole justification for the loss of the principal investment. 55.While the general volatility of global financial markets is a matter of public notoriety, the actual loss of a specific litigant’s capital within that market is an evidentiary fact that must be strictly pleaded and proved. 56.Section 107 of the Evidence Act places the burden of proof on the party who desires the court to give judgment as to any legal right or liability dependent on the existence of facts which she asserts. 57.The first respondent asserted that the trading account "blew up" and that she lost her own personal funds alongside the appellant's money. 58.However, she failed to produce a single shred of documentary evidence, bank ledger, or forex broker transaction statement to substantiate this assertion. 59.By allowing the first respondent to casually shrug off kenya shillings one million based on abstract judicial notice without proving the mechanics of the actual loss, the trial magistrate shifted the burden of proof unlawfully and erred fundamentally in law. 60.On the third issue regarding the doctrine of frustration, the respondents argue that the market collapse was an external, unpredictable event that rendered the performance of the contract impossible. 61.The doctrine of frustration operates within narrow confines; it requires that an un-contemplated turn of events makes the performance of a contract physically or commercially impossible, completely transforming the obligation into something radically different from what was undertaken. 62.The self-induced frustration or regular business risks do not qualify. As a self-proclaimed professional trader, the first respondent was fully aware of market fluctuations when she executed the agreement. 63.Financial underperformance, market downturns, or poor trading decisions do not constitute frustrating events; they constitute the exact operational hazards inherent to the business she chose to run. 64.The total wiping out of an investment account due to unverified trading movements cannot be excused as an act of God or an external frustrating event beyond human control. 65.The defence of frustration is completely untenable and is rejected. 66.The fourth issue as to whether the agreement was a speculative profit-sharing investment or a fixed-interest financial obligation, the plain text of the contract executed on October 25, 2018, explicitly provided that the appellant would hand over kenya shillings one million, and in return, the first respondent committed to paying a structured, fixed interest amount of kenya shillings 280,000 per month. 67.The contract contained no clause stating that the monthly payments were conditional upon market profitability, nor did it contain any clause authorizing the total absorption or forfeiture of the principal capital in the event of market losses. 68.It is a foundational principle of contract law that courts must uphold the sanctity of contracts and refrain from rewriting agreements for parties. 69.It is trite law that courts cannot rewrite contracts for or on behalf of parties, and parole evidence may not be used to contradict clear written terms. 70.By recharacterizing a guaranteed fixed-interest payment structure as a variable "profit-sharing" venture, the trial magistrate re-wrote the contract to bail out a defaulting party, directly violating established jurisprudence. 71.The appellant advanced funds under an explicit, unconditional repayment and interest structure, and the first respondent was bound to honor it. 72.Regarding the fifth and final issue, the first respondent assumed a strict fiduciary position when she accepted the appellant's money to trade on her behalf. 73.This relationship demanded the utmost good faith, transparency, and accountability. 74.A professional trader acting in good faith does not quietly sit back and allow a principal's account to be wiped out to absolute zero without deploying risk-mitigation measures, utilizing stop-loss mechanisms, or halting transactions to consult the principal. 75.By failing to provide any transactional audit trail showing where the money went, the first respondent's actions amount to a severe breach of fiduciary duty, giving rise to consumer protection concerns and the doctrine of unjust enrichment. 76.To validate the trial court's judgment would signal to the public that any individual can receive public funds under a solemn contract, lose or misappropriate those funds, and escape legal liability by simply pointing at unfavorable market conditions. 77.Consequently, this court finds that the appellant fully proved her case on a balance of probabilities, while the respondents failed to discharge their evidentiary burden to justify the contractual default. 78.However, on the issue of the Kshs. 280,000 per month agreed on, I find that to enforce the appellant's claim for kenya shillings 280,000 per month from November 2018 to May 2019 would mean awarding her kenya shillings 1,960,000 in interest alone, nearly double her original principal within a mere seven months. 79.This directly contravenes the in duplum rule and allows for the very unjust enrichment that equity seeks to prevent. 80.While the first respondent committed a severe breach of contract and fiduciary duty by failing to account for the principal sum, the court must balance the scales of justice. 81.Equity will not permit the first respondent to hide behind market volatility to misappropriate public funds, but it will also not enforce a predatory, illegal, and unconscionable interest rate that undermines public policy. 82.Therefore, this court finds that the contractual clause providing for a monthly payment of kenya shillings 280,000 is unconscionable, illegal, and unenforceable under Kenyan law. 83.A contract can be aside or modified by the court for unconscionability, the court must craft an equitable remedy to prevent unjust enrichment while ensuring the advanced funds are safely recovered. 84.The trial court's dismissal of the suit is set aside, and judgment is hereby entered in favor of the appellant against the first respondent for the recovery of the principal sum of kenya shillings 1,000,000. 85.On the question of interest, the predatory 28% monthly rate is completely struck out, and the first respondent is instead ordered to pay interest on the principal sum at a reasonable court rate of 12% per annum from the date the contract was breached in November 2018 until payment in full. 86.The first respondent shall also bear the costs of this appeal and the costs of the lower court suit. 87.Orders to issue accordingly. DATED, SIGNED AND DELIVERED ONLINE VIA MICROSOFT TEAMS AT NAIROBI THIS 20TH DAY OF MAY, 2026...................................A. N. ONGERIJUDGEIn the presence of:Mr Moses Muiruri for the Applicant.Mr Mbugua holding brief Mbui for the Respondent.Ubah - Court Assistant.