https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/10793

Momentum Credit Ltd v Mwangi (Civil Appeal E211 of 2024) [2026] KEHC 10793 (KLR) (17 July 2026) (Judgment) Neutral citation: [2026] KEHC 10793 (KLR) Republic of Kenya In the High Court at Mombasa Civil Appeal E211 of 2024 J Ngaah, J July 17, 2026 Between Momentum Credit Limited Appellant and James Karanja Mwangi Respondent (Being an appeal against the ruling of the Learned Adjudicator, Hon. Gatambia Samuel Ndungu, delivered on 12th July 2024 in Mombasa Small Claims Case No. E199 of 2024 between James Karanja Mwangi and Momentum Credit Limited) Judgment Introduction 1.This is an appeal from the ruling of the Small Claims Court at Mombasa (Hon. Gatambia Samuel Ndungu, Adjudicator) delivered on 12th July 2024 in Mombasa Small Claims Case No. E199 of 2024, James Karanja Mwangi v Momentum Credit Limited. The Adjudicator found in favour of the Claimant, now the Respondent in this appeal, and against the Defendant, now the Appellant, on a claim arising from a log book loan and an insurance premium finance facility advanced by the Appellant to the Respondent. 2.Aggrieved by that outcome, the Appellant, a lender described in these proceedings variously as a microfinance institution and a digital credit lender, filed this appeal. The Respondent supports the ruling of the Small Claims Court in its entirety and urges that the appeal be dismissed. Background 3.The essential facts, which are largely common ground between the parties, are as follows. On or about 1st December 2023 the Respondent applied for, and was granted by the Appellant, a log book loan facility in the sum of Kshs. 250,000/= together with an insurance premium finance facility of Kshs. 44,615/=. The facilities were secured by motor vehicle registration number KDA 215N ("the motor vehicle"), which was valued, fitted with a tracking device, and jointly registered in the names of the Appellant and the Respondent pursuant to a security agreement executed by the Respondent. 4.According to the Respondent, the log book loan was repayable in twenty-four (24) monthly instalments of Kshs. 24,530/= each, and the insurance premium finance in ten (10) monthly instalments of Kshs. 5,615/= each, at a stated flat interest rate of 4% per month and a reducing-balance rate of 6.268%. The Appellant's own record of the loan terms, exhibited at pages 64 to 69 of the Record of Appeal, additionally records a default/penalty interest rate of 0.33% per day on any outstanding amount. 5.The Respondent's account fell into arrears. The Appellant issued a demand letter and, upon the demand not being met, instructed its auctioneers, M/s Antique Auctioneers, who served the Respondent with a proclamation notice in respect of the motor vehicle. It is common ground that this was not the first attempt at attachment; the Respondent avers, and it is not seriously controverted, that this was the second occasion on which the Appellant sought to attach the vehicle. 6.It is the Respondent's case that he had, by the time of filing suit, paid a total of approximately Kshs. 147,180/= towards the facilities (calculated on the Respondent's own account as six monthly instalments of Kshs. 24,530/=), and that despite these payments the Appellant claimed an outstanding balance of Kshs. 296,525/=, a sum which, if paid together with sums already remitted, would see the Respondent pay a total of approximately Kshs. 588,720/= against a combined principal advance of Kshs. 294,615/=. The Respondent further avers that he was, prior to the institution of the suit, never furnished with a copy of the loan agreement or a reliable statement of account, and that the figures communicated to him by the Appellant's system were inconsistent. 7.The Appellant, for its part, maintains that the Respondent freely executed the log book loan application form and the insurance premium finance form on 28th November 2023, agreeing to the terms recorded there, including the daily penalty rate; that the Respondent's account was, and remains, in arrears as shown in the statements at pages 90 to 93 of the Record of Appeal; and that the Appellant, being neither a bank nor a financial institution within the meaning of the Banking Act (Cap. 488), was entitled to enforce the contract as agreed without regard to the in duplum rule under section 44 of that Act. Proceedings before, and the ruling of, the Small Claims Court 8.By a Statement of Claim dated 31st May 2024, the Respondent sought before the Small Claims Court: (a) disclosure of the documents constituting the loan contract and of the actual balance owed; (b) a declaration that the contract was illegal for charging interest beyond the rates applicable to regulated financial institutions in Kenya; (c) an order permitting him to pay the balance of the principal and interest within the rates applicable to financial institutions; and (d) costs. Contemporaneously, the Respondent applied for orders restraining the Appellant from repossessing the motor vehicle, for preservation of the status quo, and for an order compelling disclosure of the loan agreement, pending the hearing of the application. 9.The Appellant filed a Replying Affidavit, a Response to the Statement of Claim incorporating a counterclaim, a witness statement and a list of documents in opposition. 10.In the ruling delivered on 12th July 2024, the Adjudicator determined the matter as follows:“(a)The Respondent is entitled to full material disclosure of the loan borrowed from the Appellant; the Appellant is hereby directed and ordered to forthwith supply the Respondent with the information sought.(b)The court finds and declares the loan between the Appellant and the Respondent to be unconscionable.(c)It is directed and ordered that the loan agreement between the Respondent and the Appellant be computed afresh such that in no way will the Respondent be compelled to repay more than double the principal sum borrowed.(d)The Respondent's motor vehicle KDA 215N shall not be proclaimed or otherwise divested from unless he defaults in his loan repayments under the new court-ordered terms that take cognisance of the in duplum rule. (e) Each party to bear their own costs." 11.It is against that ruling that this appeal is brought. Grounds of Appeal 12.The Appellant's grounds of appeal, as distilled from the Memorandum of Appeal and elaborated in its written submissions, raise five questions:i.Whether the Adjudicator erred in law and in fact in finding and declaring that the loan agreement between the Appellant and the Respondent was unconscionable;ii.Whether the Adjudicator erred in law in ordering the Appellant to compute the Respondent's loan amount afresh, applying the in duplum rule, in the process re-writing the parties' contract;iii.Whether the Adjudicator erred in law in finding that the in duplum rule applies to the Appellant, which is a non-deposit-taking microfinance/digital credit institution and not a "financial institution" within the meaning of the Banking Act;iv.Whether the Adjudicator erred in law in making a conclusive determination of the suit at what was, in substance, an interlocutory stage, without affording the Appellant a hearing on its defence and counterclaim, thereby infringing its right to a fair hearing under Article 50(1) of the Constitution; andv.Whether the Adjudicator erred in law in granting reliefs, in particular the order for recomputation of the loan, that had not been specifically pleaded by the Respondent in his Statement of Claim. Submissions of the Parties 13.The Appellant submits that the Respondent knowingly and freely executed the loan documentation, that the terms were clearly spelt out, and that it is not for a court to re-write a contract on account of interest lawfully agreed between the parties, relying on National Bank of Kenya Ltd v Pipeplastic Sankolit (K) Ltd & Another, Civil Appeal No. 95 of 1999, and Julius Mainye Anyega v Ecobank Kenya Limited [2014] eKLR. The Appellant further relies on its own earlier vindication in Momentum Credit Limited v Teresia Nduta Kabuiya, HCCA No. E035 of 2022 [2022] KEHC 13705 (KLR), in which this Court (Majanja, J.) held that the in duplum rule under section 44 of the Banking Act does not apply to non-deposit-taking microfinance institutions, since such an institution does not meet the statutory definition of a "bank" or "financial institution". The Appellant contends that it is a digital credit lender, that it does not accept deposits from members of the public, and that the Adjudicator therefore had no basis for invoking the in duplum rule or ordering that repayments be capped at double the principal. On the question of fair hearing, the Appellant contends that no substantive hearing was fixed after the mention of 20th June 2024, and that it was denied the opportunity to call its witness and prosecute its counterclaim before the matter was conclusively determined. Finally, the Appellant submits that the order for recomputation was not sought in the Statement of Claim and ought not to have been granted, relying on Daniel Otieno Migore v South Nyanza Sugar Co. Ltd [2018] eKLR for the proposition that parties are bound by their pleadings. 14.The Respondent, in response, supports the ruling in its entirety. He submits, firstly, that the Appellant's own conduct - in failing to furnish the loan agreement and a reliable statement of account until after suit had been filed - breached the disclosure obligations imposed by Article 46(1)(b) of the Constitution and sections 34 and 87 of the Consumer Protection Act, 2012, and that this alone entitled the Small Claims Court to intervene. Secondly, he submits that, independently of section 44 of the Banking Act, the Central Bank of Kenya (Digital Credit Providers) Regulations, 2022 (Legal Notice No. 46 of 2022) impose materially the same limitation - that a digital credit provider is limited in what it may recover from a non-performing loan to the principal outstanding, interest not exceeding that principal, and reasonable recovery expenses (regulation 19) - and that the Appellant, said to be listed as a licensed digital credit provider in the Central Bank of Kenya's public directory, falls squarely within that regime. He relies on Mugure & 2 others v Higher Education Loans Board (Petition E002 of 2021) [2022] KEHC 11951 (KLR) as authority for the broader proposition that the policy underlying the in duplum rule is not confined to banks. Thirdly, he submits that the Small Claims Court, being a court of documents under section 30 of the Small Claims Court Act, 2016, and constrained to dispose of matters within sixty days under the guiding principles in section 3(3) of that Act, was entitled to determine the matter on the pleadings, affidavits and documents filed by both sides, and that the Appellant did in fact have an opportunity to place its case on record. Finally, he submits that an appeal to this Court under section 38(1) of the Small Claims Court Act, 2016 lies only on a matter of law, and that a court is not powerless to grant relief that is the necessary and proportionate consequence of a pleaded case merely because it was not couched in identical language, citing Dickson Mbithi Kivaya v Bethwel Mutinda Kingele, E203 of 2021, and the general principle, drawn from Mohamed v Attorney General [1990] KLR 146 and Nyeri County Council v Monicah M. Mwangi, Nyeri Civil Appeal No. 40 of 2001, that a court will not enforce, or lend its process to, an illegal or unconscionable bargain. The Duty of the First Appellate Court 15.The duty of a first appellate court is well settled and is not in dispute between the parties. It is to re-evaluate, re-assess and re-analyse the evidence on the record and to reach its own independent conclusions, bearing in mind that it neither saw nor heard the witnesses and must make due allowance for that disadvantage: Selle & Another v Associated Motor Boat Co. Ltd [1968] EA 123; Abok James Odera t/a A.J. Odera & Associates v John Patrick Machira t/a Machira & Co. Advocates, Nairobi Civil Appeal No. 161 of 1999 [2013] eKLR, citing Kenya Ports Authority v Kuston (Kenya) Limited [2009] 2 EA 212. This appeal, however, is further constrained by section 38(1) of the Small Claims Court Act, 2016, which confines an appeal from the Small Claims Court to matters of law. This Court will accordingly not disturb findings of fact made by the Adjudicator save to the extent that they are shown to be so perverse that no reasonable tribunal, properly directing itself, could have arrived at them, or to have been arrived at without evidence or on a misapprehension of the evidence: Momentum Credit Limited v Teresia Nduta Kabuiya, HCCA No. E035 of 2022 [2022] KEHC 13705 (KLR), applying John Munuve Mati v Returning Officer, Mwingi North Constituency & 2 others [2018] eKLR. Analysis and Determination 16.Four issues arise for determination: (a) whether the Adjudicator erred in declaring the loan agreement unconscionable; (b) whether the order that the loan be recomputed so that the Respondent repays no more than double the principal was properly made in law; (c) whether the Appellant was denied a fair hearing; and (d) whether the Adjudicator granted relief not pleaded by the Respondent. I take these in turn. (a) Was the finding of unconscionability sustainable? 17.It is trite, and both parties correctly accept, that a court of law will not ordinarily rewrite a contract freely entered into between commercial parties. This was the holding relied upon by the Appellant in National Bank of Kenya Ltd v Pipeplastic Sankolit (K) Ltd & Another (supra), where the Court of Appeal held that "a court of law cannot rewrite a contract with regard to interest as the parties are bound by the terms of their contract." That principle, however, has never been treated as absolute. The very same authority - and the Appellant's own precedent in Momentum Credit Limited v Teresia Nduta Kabuiya (supra) - recognises an exception:“Nevertheless, courts have never been shy to interfere with or refuse to enforce contracts which are unconscionable, unfair or oppressive due to procedural abuse during formation or a lack of meaningful choice for the other party. Substantive unconscionability is that which results from actual contract terms that are unduly harsh, commercially unreasonable, and grossly unfair given the existing circumstances of the case." 18.Applying that test to the material before the Small Claims Court, I am satisfied that the finding of unconscionability was open to the Adjudicator on at least two independent bases. First, on the question of disclosure: it is not seriously disputed that the Respondent was not furnished with a copy of the executed loan agreement, nor with a coherent statement of account, until after he had filed suit. Article 46(1)(b) of the Constitution guarantees consumers "the right to information necessary for them to gain full benefit from goods and services", and sections 34 and 87 of the Consumer Protection Act, 2012 impose a correlative duty on suppliers of credit to deliver contractual information in a form the consumer can understand, at the time it matters, and not merely on demand once a dispute has crystallised. A lender who withholds the terms of the very facility it seeks to enforce, and who is unable to give its borrower a consistent account of what is owed, cannot resist a finding that the resulting bargain, or at least its enforcement, is unconscionable. 19.Secondly, on the substance of the bargain: the Respondent's uncontroverted evidence is that a principal advance of Kshs. 294,615/= (comprising the log book loan of Kshs. 250,000/= and the insurance premium finance of Kshs. 44,615/=) generated a contractual repayment obligation of the order of Kshs. 588,720/= to Kshs. 644,870/= over the life of the facilities - before even accounting for the additional daily default penalty of 0.33% pleaded by the Appellant itself. A structure in which the scheduled contractual repayment already approaches, or exceeds, double the principal advanced, before default, and in which continuing daily penalties are then layered on top upon default, is capable of being found "unduly harsh, commercially unreasonable, and grossly unfair" within the Pipeplastic and Kabuiya test, particularly where, as here, the borrower was not given the documentation necessary to appreciate what he had agreed to. I therefore do not find that the Adjudicator misdirected himself in declaring the loan agreement unconscionable, and Ground (i) of the appeal fails. (b) Was the order for recomputation, capped at double the principal, properly made? 20.This is the ground on which the appeal has caused me the greatest difficulty, principally because the Adjudicator's ruling, as reproduced in the record, does not distinguish between two analytically distinct routes to essentially the same outcome, and the Appellant's submissions treat the matter as governed exclusively by section 44 of the Banking Act. 21.I begin with the Banking Act route, since it is the one squarely argued by the Appellant. Section 44 of the Banking Act (Cap. 488) enacts the in duplum rule, but only in respect of an "institution", defined as a bank, financial institution or mortgage finance company. As this Court held in Momentum Credit Limited v Teresia Nduta Kabuiya (supra) - a decision concerning this very Appellant - a microfinance or digital lender that does not accept deposits from members of the public does not meet the statutory definition of a "financial institution" for purposes of section 44, and the in duplum rule under that section accordingly does not apply to it. On the material before me, there is nothing to suggest that the Appellant is a deposit-taking institution, and I respectfully adopt the reasoning in Kabuiya on this point. To the extent, therefore, that the Adjudicator's order rested on a finding that section 44 of the Banking Act, simpliciter, bound the Appellant, that finding was an error of law. 22.That, however, does not dispose of the matter, for two reasons. First, and independently of the Banking Act, the Central Bank of Kenya (Digital Credit Providers) Regulations, 2022 (Legal Notice No. 46 of 2022), made under section 57 of the Central Bank of Kenya Act, impose an analogous limitation specifically on licensed digital credit providers. Regulation 19 thereof provides that a digital credit provider "shall be limited in what it may recover from a customer with respect to a non-performing loan" to the sum of the principal owing when the loan becomes non-performing, interest not exceeding that principal, and reasonable recovery expenses. The Respondent asserts, in his submissions, that the Appellant is listed as licensed digital credit provider No. 75 in the Central Bank of Kenya's public directory. If correct, this would bring the Appellant within a bespoke statutory in duplum-equivalent regime designed precisely for lenders of the Appellant's description, regardless of whether it is a "financial institution" under the Banking Act. I am not, however, prepared to make a finding of fact on the Appellant's regulatory status on the strength of an assertion made for the first time in written submissions on appeal, unaccompanied by any document placed in the record or tested before the trial court. This is a matter the parties should be in a position to establish or rebut by way of primary evidence, and I decline to treat it as conclusively resolved for purposes of this appeal, without prejudice to either party's ability to rely on it, properly proved, in any future proceedings between them. 23.Secondly, and this is the ground on which I consider the Adjudicator's order can, and should, be sustained: the doctrine of substantive unconscionability discussed at paragraphs 17 to 19 above does not depend on section 44 of the Banking Act, or on any statutory in duplum provision, at all. Having found - correctly, in my view - that the loan agreement was unconscionable, both for want of disclosure and on account of the harshness of its terms, the Adjudicator was entitled, in equity, to fashion a remedy proportionate to that finding. An order that the Respondent not be compelled to repay more than double the principal sum advanced is not, properly understood, a mechanical application of section 44 of the Banking Act; it is a measured and conventional equitable response to a finding of unconscionability, and one which happens to track the numerical limit that Parliament and the Central Bank have, in cognate contexts (the Banking Act and the Digital Credit Providers Regulations, 2022 alike), considered to represent the point beyond which continued accrual of interest and penalties on a defaulted debt becomes oppressive. I am fortified in this view by the observation of Ojwang, Ag. J. (as he then was) in Suleiman v Amboseli Resort Ltd [2004] eKLR that equitable relief must be fashioned to "take whichever course appears to carry the lower risk of injustice", and by this Court's own recognition in Kabuiya that unconscionability remains available as an independent basis for refusing to enforce oppressive contractual terms even where the Banking Act does not, in strict terms, apply. 24.I would therefore vary, rather than set aside, the Adjudicator's order at paragraph (c) of the ruling: the direction that the loan be recomputed so that the Respondent is not compelled to repay more than double the principal sum borrowed is affirmed, not as an application of the in duplum rule under section 44 of the Banking Act, and without a concluded finding as to the applicability of regulation 19 of the Central Bank of Kenya (Digital Credit Providers) Regulations, 2022, but as an equitable remedy consequent upon the finding, upheld above, that the loan agreement as enforced against the Respondent was unconscionable. Ground (ii) of the appeal succeeds only to the limited extent of this clarification of the legal basis for the order; it otherwise fails, as does Ground (iii), the substantive outcome directed by the Adjudicator being sustained on the alternative ground here articulated. (c) Was the Appellant denied a fair hearing? 25.Article 50(1) of the Constitution guarantees every person the right to have a dispute resolved by the application of law in a fair hearing. The Small Claims Court Act, 2016, however, establishes a deliberately summary and document-driven forum: section 3(3) directs adjudicators to achieve timely, inexpensive and simple disposal of disputes, and section 30 expressly empowers the court to determine a claim on the pleadings and documents filed, consistently with the sixty-day disposal target applicable to that court. On the Appellant's own account, it filed a Replying Affidavit, a Response to the Statement of Claim incorporating a counterclaim, a witness statement and a list of documents, all of which were before the Adjudicator when the ruling was rendered on 12th July 2024. A litigant who has had the opportunity to place its case, its evidence and its documents on the record, in a forum whose governing statute contemplates determination on the papers cannot be deemed to have been denied a fair hearing merely because no further oral hearing was convened after the mention of 20th June 2024. Fair hearing is concerned with the opportunity to be heard, not with the particular procedural form that hearing must take, especially in a forum Parliament has designed to be summary. I am not satisfied, on the material before me, that the Appellant has shown that the Adjudicator's approach caused it any specific, identifiable prejudice beyond the outcome itself. Ground (iv) accordingly fails. (d) Did the Adjudicator grant relief not pleaded? 26.It is correct, as the Appellant submits, and as this Court held in Daniel Otieno Migore v South Nyanza Sugar Co. Ltd [2018] eKLR, that parties are bound by their pleadings, and that a court should not travel outside the four corners of the case as pleaded. The Respondent's Statement of Claim sought, among other things, a declaration that the contract was illegal for charging interest beyond regulated rates, and an order permitting him to pay the balance of principal and interest "within the rates offered for financial institutions in Kenya". The order actually made - that the loan be recomputed such that the Respondent repay no more than double the principal - is not couched in identical terms, but it is, in substance, the direct and proportionate consequence of the relief the Respondent did seek: having found the contract illegal/unconscionable as pleaded, the Adjudicator was required to say what the Respondent should now pay, and fashioned an order squarely within the scope of, and necessary to give effect to, the declaration sought. I do not consider that this occasioned any unfair surprise to the Appellant, who had, on the pleadings, full notice that the legality and quantum of its claim were in issue. Ground (v) accordingly also fails. Disposition 27.For the reasons set out above, I find that the Adjudicator did not err in declaring the loan agreement between the Appellant and the Respondent unconscionable, did not deny the Appellant a fair hearing, and did not grant relief outside the scope of the pleadings. I further find that, while the strict in duplum rule under section 44 of the Banking Act does not apply to the Appellant as a non-deposit-taking lender, the order that the Respondent's indebtedness be recomputed and capped at double the principal sum borrowed is sustainable, and is sustained, as an equitable remedy flowing from the finding of unconscionability. 28.Accordingly, the appeal is dismissed, save that the order at paragraph (c) of the Adjudicator's ruling of 12th July 2024 is varied to read that the Respondent shall not be compelled to repay more than double the principal sum borrowed (being the aggregate of the log book loan and the insurance premium finance advanced). The remaining orders of the Small Claims Court, at paragraphs (a), (b), (d) and (e) of the ruling, are affirmed. 29.As the Appellant has been substantially unsuccessful in this appeal, it shall bear the Respondent's costs of the appeal.It is so ordered. DATED, SIGNED AND DELIVERED ON 17 JULY 2026NGAAH JAIRUSJUDGE