[2023] KEMSET 1188 (KLR)

Onkoba v Sterling Credit Limited (Tribunal Case E003 of 2022) [2023] KEMSET 1188 (KLR) (23 March 2023) (Judgment)

Neutral citation: [2023] KEMSET 1188 (KLR)

Republic of Kenya

In the Micro and Small Enterprises Tribunal

Tribunal Case E003 of 2022

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

March 23, 2023

Between

Daisy Nyabate Onkoba

Claimant

and

Sterling Credit Limited

Respondent

Judgment

Introduction 1. This is a claim filed by the Claimant, Daisy Nyabate Onkoba through her lawyer Javier Munzala of Javier Georgiadis & Sylvester Law LLP on 23rd September 2022 under certificate of urgency dated 21st September 2022 claiming that the Claimant had taken a loan facility with the Respondent for Kes 48,000 and had since repaid the loan in full to the tune of Kes 142,130. Despite clearing the loan, the Respondent had continually resorted to harassing and haranguing her to the extent of contacting her employers and visiting her place of work in purported collection of the debt. The Respondent had failed to produce statements of account relating to the loan facility for reconciliation and due to the Respondent’s unorthodox methods and practices under the guise of collecting the said debt, the Claimant had been suspended from work pending investigations into her conduct. The Claimant further claimed that in the event the Respondent is not stopped from proceeding with the alleged collection of the impugned debt, the Claimant would suffer irreparable loss and damage arising from the acts of the Respondent.

2. The Respondent is a limited liability company whose core business was issuance of loans to the public.

3. The Tribunal thereafter gave orders on the 5th of October 2022 and ordered that:a.The Application dated 21st September 2022 to be certified as urgent.b.Pending the hearing and determination of the Application, a temporary injunction restraining the Respondent, its agents, servants, or anyone else acting in the Respondents’ name from attempting to collect from the Claimant any amount in respect to the loan.c.The Respondent renders and delivers to the Claimant true and correct accounts and entire statement of accounts of the Claimants accounts operated by the Respondent in respect to the loan account.d.The Claimant serves the Application and all the supporting documents upon the Respondent within seven (7) days ad in any case by 12th October 2022. e.The Claimant serves the Application and all supporting documents upon the Respondent within seven (7) days and in any case by 12th October 2022f.The Respondent files and serves a response within fourteen (14) days of service of the Application and in any case by 26th October 2022g.The Claimant files and serves the Reply to the Response within seven (7) days of service of the Response and in any case by 2nd November 2022h.The cause be mentioned on 3rd November 2022i.The cost of this Application be in the Cause.

4. On 11th October 2022, the Claimant moved the Tribunal under certificate of Urgency dated 11th October 2022 seeking to cite the Respondent for contempt for failure to comply with the orders dated 5th October 2022.

5. On 11th November 2022 the matter came up for mention and the Tribunal gave further orders as follows:a.The Respondent was in breach of orders No. 2 and 3 that were issued on the 5th of October and ought to be cited for contemptb.Managing Director of the Respondent was summoned to appear physically before the Tribunal at Forodha House 4th Floor, Court 1 on 29th November 2022 at 9:00 am for further directionsc.Cost of the Application be in the Cause

6. The matter came up for mention again on 29th November 2022, the Respondent’s counsel indicated that the Respondent’s Managing Director (MD) was a surgeon and apologised as he could not make it to court due to a pre-scheduled surgery. The other Respondent’s director was the wife to the Managing Director had recently given birth and was not able to attend the court session. They indicated that the Respondent’s MD would be available physically on 9th December 2022 at 9. 00 am. The counsel further indicated that the parties were desirous in settling the matter.

7. The Tribunal gave further directions and ordered that:a.Respondent was in breach of Order No. 2 that the Tribunal issued on 5th October 2022 and ought to be cited for contempt.b.Temporary injunction is issued restraining the Respondent and his agents, servants or anyone acting in the Respondent’s name from calling the Claimant, visiting the Claimant’s house or work premises without invitation, bothering, harassing, intimidating, or threatening the Claimant and/or from interfering with the Claimant’s Day to day activities pending hearing and determination of the claim.c.The Respondent’s director, Dr. Paul Sangaro be summoned to appear in person before the Tribunal at Forodha House, 4th Floor on 9th December 2022 at 9:00 noon for further directions.d.The Respondent’s director Dr. Yvonne Munyao to appear either physically or virtually before the Tribunal on 9th December 2022 at 9:00 am for further directions,e.The Claimant files and serves the reply to the Respondents’ response and counterclaim within seven (7) days and in any case before 9th December 2022. f.The parties were at liberty to engage with a view to settling the matter amicably.

8. On 9th December 2022 the matter came up again for mention, but the MD did not enter physical appearance as he had travelled for a conference but the Respondent’s other director who was on maternity leave appeared in person before the Tribunal. The Respondent’s counsel apologised for the MD’s absence and requested that the same should not be deemed as contempt and requested the court to go to the substance of the claim which was the disputed loan amounts.

9. The Tribunal on hearing both counsels for the parties noted that since 7th October 2022, Respondent and his agents had desisted from contemptuous acts against the Claimant and the Respondent through their advocates had apologised to the Tribunal and Claimant for all acts that were deemed contemptuous. The Tribunal being desirous of expeditious determination of the matter while ensuring the best interests of the parties were safeguarded gave further orders that:a.Order No. 2 of 29th November 2022 to remainb.Claimant files any other additional documents if any by 14th December 2022c.Claim to be heard virtually on 20th December 2022 at 9:00 a.m.

10. The matter was adjourned on 20th of December 2022 and a new hearing date fixed for 20th January 2023 which was further moved to 2nd February 2023 at the request of the Claimant’s counsel.

Issues For Determination: 11. According to the Claimant’s written submissions dated 10th February 2023, there are three (3) main issues for determination:a.Whether there is an outstanding debt owed to the Respondentb.Whether the Respondent’s directors should be held in contempt for disobedience of the order of 5th October 2022 and 11th November 2022c.What are the appropriate order as to costs?The Tribunal determined that the Respondent’s directors would not be held in contempt during the mention dated 9th December 2022.

12. Respondent’s written submissions dated 17th February 2023 indicated issues pending determination by the Tribunal as follows:a.Whether there is any outstanding debt between the Claimant and Respondentb.Whether the Claimant is entitled to damages for alleged breach of contract and statutory dutyc.Who bears the costs of these proceedings?

13. On hearing both parties, below are the main issues for determination by the Tribunal:a.Whether there is an outstanding debt between the Claimant and Respondent and how much (if there is an outstanding debt)?b.Were the top up loans subject to the same terms as the original loan?c.Is the Claimant entitled to damages for alleged breach of contract and statutory duty?d.Who bears the costs of the proceedings?

14. Were the top up loans subject to the terms of the original loan?a.The Claimant in the Response to Defence and Counterclaim, under para 6, the Claimant averred that she was not informed that the top up facility would be restructured into (i) the existing facility and (ii) new interest would be applied. Part of the documents attached to the loan agreement (exhibit DNO-2) includes an email dated 9th April 2021 from the Claimant documents shared for “review of top up loan”.b.Further, via the Claimant’s exhibit DNO 3, shows excerpts of a message communication between the Claimant and Respondent dated Tuesday 27 January 2022, requesting confirmation from the Claimant on whether she was interested in a top up which she was to send a reply to the number sending the message or WhatsApp message by confirming “Yes”c.The Claimant asked how much was available for topping up which was confirmed as Kes 7,772/- and confirmed Yes.d.A loan top up has been defined as “an additional amount on the ongoing individual loan”e.It is clear that the top up was not meant to be a revolving loan but rather an additional amount to the already existing loan facility. However, question arises on whether the tenor was meant to remain the same as the existing loan which would affect the repayments. We are unable to confirm this as there was no contract detailing this out, or at least a loan statement furnished with the Claimant for her to know the repayment amount due, which is her right under the Consumer Protection Act.f.Under Sec 56 of the Consumer Protection Act, a borrower under a credit agreement is not liable to pay the lender (a) the cost of borrowing under a credit agreement if the borrower receives no statements required by this Part; or (b) as part of the cost of borrowing, any amount in excess of the amounts specified in the statements that this Part requires to be delivered to the borrower in respect of the agreement. It would be unfair on the Claimant to be repaying a loan blindly without confirmation (even after having requested for the statements) and without a cost of credit/borrowing when the loan terms have been altered or changed. At the very least, the Respondent should have availed the expected loan tenor after the top ups and the mandated repayment amounts. It was thus left to the Respondent to determine how the same was to be repaid bringing rise to unconscionable representation and unfair practices as per Sec 13 of the Consumer Protection Act due to:i.No reasonable probability of payment of the obligation in full by the consumer due to unclear credit termsii.the consumer transaction is excessively one-sided in favor of someone other than the consumer – the terms of the top up were at the prerogative of the Respondent without notification to the Claimant,iii.the terms of the consumer transaction are so adverse to the consumer as to be inequitable.g.The terms of the ‘top up” were not clearly defined and in contradiction with the Consumer Protection Act therefore illegal.

Is there an outstanding debt and amount?15. 1According to the parties’ written submissions, On 22nd October 2020, Kes 30,000/- was disbursed and on April 9th, 2021, a top up of 11,979 was disbursed leaving an outstanding principal amount of Kes 23,021 making the aggregate principal of Kes 35,000/-. The Claimant as at end of January 2022 had an outstanding principal amount of Kes 27,228/- and got a top up loan of Kes 7,772 that was disbursed on 27th January 2022, making the aggregate principal amount of Kes 35,000/-. Based on the loan statements provided by the Respondent, the Claimant had made payment of Kes 152,455/- of which Kes 14,931/- went into payment of the principal amount and Kes 137,524/- towards interest repayment.15. 2.The Claimant indicated the processing fee for each of the loans had not been communicated to her and the same is not evidenced in the loan agreement. Be that as it may, Para 16 of the Respondent’s counterclaim indicated that the Claimant owed the Respondent Kes 90,827/- and consequently sought prayers for the Claimant to be compelled to pay the Respondent the owed amounts.15. 3. When determining the amounts payable on a loan, several factors are taken into consideration – tenor of the loan, interest applicable, principal amount etc. The details of this would be ideally captured in the loan agreement. The same was captured for the first loan but nothing was given to the Respondent on the top ups, nor a schedule of payments given as required by law. Review of the loan agreement (which is undated) does not address the issue of loan top ups, it merely indicates under Section 2. 4 that interest rate was 25%. Further, Under Clause 2 of the loan agreement on Interest, it reads “… the interest shall apply to the initial capital sum at a flat rate per month according to the terms referred in 2. 2and 2. 1 above. If the borrower fails to pay any amount which the borrower owes Sterling Credit in terms of this agreement on the due date of such amount, Sterling Credit shall be entitled to charge interest on the amount the borrower has not paid or delayed paying at the same rate as that stated in clause 2. 2 above.Clause 2. 4 indicates that interest rates per month applicable on the amount borrowed are as follows: - 1-3 months- 25% per month.15. 4.It is not clear how interest is calculated- is this on reducing balance or compound interest method. The Tribunal finds it difficult to ascertain the amounts owed as doing so would be tantamount to re-writing the contract between the two parties as there are several unknowns- one being on whether the interest calculated was based on an extended tenor or the original tenor which affects each principal amount that was topped up as this was at the sole prerogative of the Respondent.15. 5.Further, the Tribunal noted through the statements that in April 2022, a late fee of Kes 3,482 was loaded into the outstanding amount- there is no evidence under the loan agreement of a charge of a late fee as provided for under clause 2. Under the Consumer Protection Act, Sec 61, a lender is not entitled to charge default charges other than (i) legal costs that the lender incurs in collecting a payment required by the borrower, realising a security interest, or protecting the subject matter of the security interest or (ii) reasonable charges that the lender incurs due to a payment instruction issued by the borrower being dishonoured.15. 6.The in duplumrule has been used by both parties in their submissions. “In duplum was a Latin phrase derived from the word “in duplo” which loosely translated to “in double”. Simply stated, the rule was to the effect that interest ceased to accumulate upon any amount of loan owing once the accrued interest equalled the amount of loan advanced. The in duplum rule was concerned with public interest and was introduced in Kenyan laws to tame the appetite of lenders who had made recovery of interest on advances a cash cow. It was intended to protect borrowers from exorbitant interest accumulation on loans and limit the amount recoverable by a lender on a defaulted facility to no more than double the principal owing when the loan had become non-performing plus recovery expenses.15. 7.Under the Banking Act, which the Respondent has relied on, theAct defines non-performing loans and advances for purposes of Sections 20, 31 and 44A of the Banking Act to mean: In respect of loan accounts and other credit extensions having preestablished repayment programs, when any of the following conditions exist:a.principal or interest is due and unpaid for 90 days or more: orb.interest payments for 90 days or more have been re-financed, or rolled over into a new loan15. 8.From the statements shared by the Respondent, the loan was not repaid from April 2022 (neither interest nor principal was repaid)- the outstanding principal amount ought to be 34,820/- and not 47,077- as indicated since this amount had an element of the topped up late repayment fee of Kes 3,482 and accrued interest of Kes 8,775/-. The outstanding Principal amount after 90 days (when the loan becomes a non-performing loan) was 34,820/- and any interest accrued should not exceed the outstanding principal i.e.: total amount due to the Respondent would stand at Kes 69,640. However, we are unable to determine how the Respondent calculated his interest since the loan agreement did not clarify whether this was compounded or on reducing balance method.15. 9.Provision of loan statements is a right owed to the Claimant under the Consumer Protection Act not a privilege whether the request for statements was before or after the Claimant going into default. Under Para 14 of the Counterclaim, Respondent confirmed that he had provided the Claimant’s counsel with a comprehensive statement of due amounts on 17th November 2022 and no attempts on her part had been made to settle the amounts due. However, the Tribunal had made orders on the 5th of October 2022, amongst which, “pending the hearing and determination of the Application, a temporary injunction restraining the Respondent, its agents, servants or anyone else acting in the Respondents’ name from attempting to collect from the Claimant any amount in respect to the loan” and the Claimant would only settle any amount due after determination of the matter, part of which included whether there was an outstanding debt to be repaid.Due to the unconscionable nature of the arrangement, the Tribunal is unable to determine the amount due by or from either party and hereby determines that the Claimant does not owe the Respondent any monies.

16. Is the Claimant entitled to damages for alleged breach of contract and statutory duty?General damages are damages considered to flow naturally and generally from a breach in the normal course of events and are recoverable without a need to prove anything more. This is because the law presumes that the contracting parties could reasonably have foreseen all natural consequences of breach of contract at the time of conclusion of the contract. The innocent party need only prove that the damage was of the kind that flows naturally and generally from the type of breach in question.However, the Claimant has not adduced sufficient evidence to show the damage and supporting evidence for the breach of contract and therefore the Tribunal is unable to award any damages.

17. Who bears the costs of the claim?The Tribunal has considered the expenses incurred by the Claimant and the time she took to bring this matter for hearing and determination and finds it just and proper to award costs to the Claimant for all the applications and costs of this suit.

Orders 18. Flowing from the above reasoning, we find that in the interest of justice that:a.The terms of the ‘top up” were not clearly defined and in contradiction with the Consumer Protection Act therefore illegal.b.Due to the unconscionable nature of the arrangement, the Tribunal is unable to determine the amount due by or from either party and hereby determines that the Claimant does not owe the Respondent any monies.c.the Claimant has not adduced sufficient evidence to show the damage and supporting evidence for the breach of contract and therefore the Tribunal is unable to award any damages.d.The Tribunal has considered the expenses incurred by the Claimant and the time she took to bring this matter for hearing and determination and finds it just and proper to award costs to the Claimant for all the applications and costs of this suit.

Those then are the Orders of the Tribunal.

DATED DELIVERED AND SIGNED ON THIS 23RD DAY OF MARCH 2023. DR. J. BETT - [CHAIRMAN]R. KATINA- [VICE-CHAIR]HON. J. WERE - [MEMBER]A. GIKUYA - [MEMBER]A. KIBET - [MEMBER]