[2025] KECPT 274 (KLR)

PCEA Ruiru Coop Savings & Credit Society Limited v Kenya Union of Savings & Credit Coop Limited (Tribunal Case 151/E226 of 2024) [2025] KECPT 274 (KLR) (29 April 2025) (Judgment)

Neutral citation: [2025] KECPT 274 (KLR)

Republic of Kenya

In the Cooperative Tribunal

Tribunal Case 151/E226 of 2024

BM Kimemia, Chair, Janet Mwatsama, Vice Chair, B Sawe, F Lotuiya, P. Gichuki, M Chesikaw & PO Aol, Members

April 29, 2025

Between

PCEA Ruiru Coop Savings & Credit Society Limited

Claimant

and

Kenya Union of Savings & Credit Coop Limited

Respondent

Judgment

1. The matter for determination is the Statement of Claim dated 21/3/2024 seeking the following prayers:a.Kshs.88,951,375/= being the investment and Kshs.6,089,643/= being the interest(total investment and interest -Kshs.95,041,018/=b.Damages for breach of contractc.Interest on (a) and (b) above at court rates.d.Costs of this suit together with interest thereon at such rate and for such period of time as this Honourable Tribunal may deem fit to grant.e.Any other award that the Honourable Tribunal may deem fit to grant.

2. The Claimant raises the following issues in dispute:a.The unlawful retention of Claimants’ deposits and accrued interest is contravention of the terms outlined within the investment agreementb.The breach of contract by Respondent on the initial terms of the agreement governing the investment thereby failing to fulfill its obligation as set forth therein

3. The Claimant avers that it is a member of the respondent having subscribed voluntarily to the products curated for its members That the claimant got attracted by the Respondent’s products of fixed deposits savings and in 2018 subscribed with the respondents and as of July 2023 the Claimant had deposited Kshs. 88,951,375. That the last roll over1/1/2023 and 14/1/2023 the deposits were to earn 9. 2% per annum as at the maturity date of 31/12/2023 and 13/1/2024.

4. That on about 25/4/2023 the Claimant intended to withdraw Kshs. 60,000,000 and opting to leave Kshs.25,000,000 to continue accruing interest until 31/12/2023 as per the resolution of the board in the meeting held on 15/4/2023That efforts to get the refund of the investment has been futile hence the reason for filing the claimThe Respondent filed the Statement of Defence dated 29/4/2024The Respondent confirmed the deposit by the Claimant of the fixed deposit savings accountThe Respondent also admitted the amounts in the claim as particularized in the DefenceThe Respondent avers that they have not refined due to liquidity issuesThe parties for the matter was heard interparties and thereafter parties filed their written submissionsWe note that on 19/4/2024 there was an order made for both parties to open a joint interest account and for the Respondent to deposit a sum of Kshs.95,041,018/= into the said account and matter be heard within 30days

Claimants Case: 5. The Claimants invite Edward Ngarega Gacheru witness 1 state that he was the treasurer of the claimant and he recorded the witness statement dated 21/3/2024 which was adopted on evidence in Chief and he also produced the List of Documents dated 21/3/2024, annex -11 with Further List of Documents dated 13/6/2024 CExh b1-3. He stated that the claimant invested Kshs. 71,946,475/= from 1/1/2023 @9. 2% PA to 31/12/2023 therefore interest Kshs. 6,619,076/2 as per CEXA 1, 3 & 5 and Kshs. 13,093,080/= on 14/1/2023 @ 9. 2% per Annum on 13/1/24 earning interest of Kshs. 1,204,563/=That they wrote a demand letter dated 21/2/2024 page 19 and did not receive the fundsThat the Claimant was a member of the Respondent since 2018 that by the time they passed resolutions the Claimant was already in Court.

RESPONDENTS CASE: 6. The Respondents witness Paul Wanyatta states that he was the advocacy manager of the Respondent for 13yrsHe adopted his witness statement dated 14/5/2024 and evidence in Chief and produced the list of documents dated 7/6/2024 and 29/2/2024 as RExh 1-7 and supplementary list of documents dated 14/5/2024 exhibit 1-4That the Commissioner for Cooperative Development did inspection as per the report dated 12/2023That there was mismanagement and statutory audit was ordered and thereafter the Board of Management was removed and an interim board appointedHe states that there was an intention to pay but the Respondent was experiencing liquidity issuesThat the order in favour of the Claimant in the Tribunal was made before the resolution for non-withdrawals was made.

Written Submissions 7. The Claimant filed written submissions dated 8/7/2024 filed on 11/7/2024 while the Respondent written submissions dated 24/7/2024 stamped on the 20/8/2024 Issues For Determinationa.Whether there is a breach of contract and whether there is unlawful intentionsb.Whether the claimant is entitled to damagesc.Who should bear the costs.

Issue No. 1 a. Whether there is a breach of contractThe Claimant submitted that they were members of the Respondent and invested with the RespondentThat the Claimant subscribed with the Respondent and had a fixed deposit savings with the Respondent and as at July 2023 had deposited Kshs. 88,951,375/=That the return roll over was on 1/1/2023 and 14/1/2023 respectivelyThat the Claimant sent a letter on or about 25/4/2023 communicating the intent to withdraw Kshs.60,000,000/= and to retain Kshs.25,000,000/= to continue accruing interests till 31/12/2024 as per the resolution of the board in its meeting held on 15/4/2023 which endorsed the said withdrawal arrangementThat the partial withdrawal was not affected by the Respondent who called for a meeting on the 24/5/2023 that the Respondent wrote two letters dated 7/7/2023 stating acceptance of the Claimants for Sacco special deposit earning an interest of 12% and further that the investment of :(i)Kshs.75,256,013/= would be invested for a further period of 7 months and maturity date being 31/1/2024- interest being Kshs. 5,267,921/=Certificate number 4723(ii)Kshs.13,695,362/= would be invested for further period of 6 months and maturity date being 13/01/2024 and interest being Kshs. 821,722/=.Certificate number 4724That on the maturity date, the money was not remitted and the Claimant where the letter dates 23/02/2024 demanding Kshs.s.95,041,018/= within 7 days.In Defence, the Respondent admits that:I.The letter dated 20/14/2023 for intent to withdraw Kshs. 60,000,000 and Respondent Kshs. 25,000 was received.II.That the Respondent and Claimant agreed to transfer Kshs. 75,256,013 and Kshs. 13,695,362 respectively to the Sacco Special Deposit.III.That there was a letter dated 28/12/2023 for intent to withdraw the investment upon maturity.IV.That they received the demand letter dated 23/02/2024. That the Respondent did not purposely withdraw the Claimant’s funds but were resolving liquidity issues.The Claimant submits that there was a valid contract voluntarily and therefore every party had the obligation to abide by the terms thereof but the Respondents were in breach of the said contract.We note that the Respondent confirmed that there was a valid contract and that there was misplacement of funds hence they indicated that they would be pay up the small Saccos first.That there was a resolution on the refunds, however the 2nd resolution was after the parties were already in court.That they did not deny the debt but indicated that there was an ongoing statutory audit commissioned and that there was a resolution to pay the small saccos trust in order to give the Respondent time to re-organize (3 years) as they were making recovery strategiesThe only Defence availed by the respondent in regard to the same is that they were requesting for time to reorganize and make paymentsThe Respondents 1st witness during cross examination confirmed that they were not denying the claim or the amount claimed but that there was a resolution on non-withdrawals but the witness further clarified that the order of the Tribunal was issued before the resolution therefore the Claimant was not affected by the sameThat in essence they had no money to refund the claimant due to mismanagement.That the said retention was an agreement between the Respondent and the 177 saccos present hence it was not binding as a resolutionIn the circumstances we note that there was a valid contract between the parties and at the date of maturity the Claimant went to withdraw the entitlement but the Respondent did not refund the said sums as per the contract between the partiesIn Pius Kimaiayo Langat vs Co-operative Bank Of Kenya ELO (2017) CKLR it was held that it was not the business of the courts to vary or improve contracts made between the parties where there is no ambiguity hence its not the business of the court to rewrite contracts between parties and they are bound by the terms of the contracts as held in National Bank Of Kenya Ltd vs Fireplastic Samkolit(K)LTD (2002) EA 503/PipeplasticIt is therefore very clear that the Respondent did not deny that they earned the Claimant but the general submission is that the Respondent had no money to repay the Claimant. Indeed the Respondent’s witness admitted before the Tribunal that they were not denying the indebtnessWe therefore find that there was failure by the Respondent to remit the said investment was not it the investment of the Claimant and the said investment was not remitted by the Respondent. Therefore there was failure to remit the investment.However, the Respondent submitted that the retention was not unlawful due to the resolution made at the consultative meetings dated 25/4/2024 which mandated all the members from withdrawing their deposits and that there was a consensus by the Claimant who also attended the meetingIt was resolved that that the members should not withdraw their deposits until the Respondents resolved their financial situationThat there was no objection to this declaration including the Claimant who were presentThat the Respondent therefore did not act in bad faith since the Claimant did not also raise the issue of this ongoing caseThe Respondent cited:Bellevive Development Co. LTD vs Gikonyo and three others (2020) KESC43 KRL in which the court cited Public protector vs south African Reserve Bank (2019)ZACC 29Where it held that“bad faith only exists only when the office bearer acted with specific intent to deceive harm or prejudice another person or by proof of serious or quass recklessness that reveals a breakdown of the orderly exercise of authority to fundamental that absence of good faith can be reasonably infelled and bad faith presumed”That the Respondent had no intention to deceive the Claimant hence they communicated their precarious financial position and reached out to the Claimant to have the matter removed.That the Respondents are expecting financial hardships and are unable to remit the full deposits.That the Claimant therefore has not moved bad faith on the part of the Respondent and that the intentions was unlawful.We have carefully concluded that Written Submissions and the evidence on record, together with the documents produced by both parties. We note that the parties met prior to the filing of the claim and that the Respondent communicated their financial situation.That the Respondent indeed does not deny owing the Claimant but that they are unable to fulfil their financial obligations.We therefore find that there is no demonstration of bad faith by the Claimant against the Respondent since it is clear that the Respondent was experiencing financial challenges owing to financial management, a fact which is in the public knowledge of the Claimant.The Respondent produced their bank statements to The Tribunal in confidence to demonstrate the state of their finances.The Respondent also called all the affected saccos to a meeting to explain this financial situation and there was an agreement reached by the concerned saccos including the Claimant who were present when the said “Resolutions” were reached.In the circumstances therefore, we find that there was no bad faith or prejudice demonstrated by the Claimant on terms of failure to remit the deposits. We therefore find that the failure to remit was not intentional or as a remit of bad faith hence we conclude that it was an unfortunate circumstance that the Respondent discovered that there were no finances to enable them meet their obligations. The Respondents failure to remit is therefore not deemed as unlawful.Proof of bad faith necessitates proof of existence circumstances as held in Khalifa and another Vs Principal Secretary, Ministry of Transport and 4 Others [2022] KEHC 368 Mativo J. JWe find therefore that extreme circumstances of lack of financial capacity to remit has been demonstrated by the Respondent hence the burden has been lifted by the Respondent and it has offset the burden of proof of bad faith.The failure to remit is therefore considered to not be unlawful; the Claimant having not demonstrated bad faith against the Respondent.

ISSUE NO. 2 b. Whether the Claimant is entitled to damagesThe Claimant submitted that that there was a valid contract entered voluntarily yet the Respondent failed to honor.That the investment matured on 13/1/2024 and 31/1/2024 and the investment had not been revisited.The claimant submitted that the withholding of the investment after the maturity period was a breach of contract and that the claimant continued to incur losses since the money cannot be invested elsewhere.The Claimant citedDormakaba Limited Vs Architectural suppliers Kenya Limited (Civil Rent 136/2022) [2021] KEHC, 210 (KLR) Commercial and tax (10/11/2021)Where it was held that in order to claim damages, the Plaintiff must show that;a.Contract exists or existedb.The Contract was breachedc.The Plaintiff suffered damage(s) on as a result of the breachThe Claimant therefore sought for The Tribunal to adopt the Principal of “restitutio in integrum” i.e. the measure of damages for breach of contract in accordance with the rule established in Hadley Vs Baxendale [1854] 9 Exch 341 as quoted in Wilken Communications Limited Vs Postal Corporation of Kenya [2021]eKLR.It was held that“where two parties have made a contract which one of them had broken, the damages which the other party ought to receive for such breach of contract should be such as may fairly and reasonably considered arising naturally that it is in accordance to the usual course of things from such a breach itself or such as may be reasonably contemplated by the parties at the time the contract was made and probable remit of such breach”In Dormakaba Limited Case (I bid) it was held that “… damages for breach of contract are in that sense a substitute for performance…”The Claimant therefore damages as sought in the statement of claim.The Respondent does not deny that there was a legal/valid contract between the parties as per Defence paragraph 7. The Respondent however submits that there was no breach of contract in this matter.The respondent has submitted that there was frustration of performance due to unforeseeable and uncontrollable circumstance.That extenuating circumstances led to the contract not being fulfilled and there was also the reconstitution of the former board and the Respondent was also going through financial constraints and liquidity issues that barred them from fulfilling the contract.That they communicated that they did not intend to void the contract, but they intended to alter the terms in order to allow them to resolve their liquidity problems and satisfy their deposits.The Respondents citedDavis Contractors LTD Vs FAREHAM UDC (1956) AC 696 where it was stated that“frustration occurs whenever the law recognizes that without the default of either party a contractual obligation can become uncapable of being performed because the circumstances in which the performance is called for would render it a thing radically different from that which was undertaken by the contract” non haec in fodera veni” it was not what I promised to do”.That therefore, an extenuating circumstance needs to occur that is beyond the control of contracting party for a contract to be deemed as legally frustrated.The Respondent therefore submitted the applicability of the Doctrine of frustration owing to the lack of funds as a result of mismanagement of the Board which resulted to their disbandment and a new interim Board being put in their place.That the new interim Board was therefore in the process of reconstituting and reforming the operations of the Respondent.The Respondent also cited KENYA AIRWAYS LIMITED VS SATWANT SINGH FLORA(2013) eKLR where it was held that “the doctrine of frustration operates to excuse further performance where:I.It appears from the nature of the contract and surrounding circumstances that the parties have contracted on the basis that some fundamental thing or state of things will continue to exist, or that some particular person will continue to be available, or that some future event which forms the foundation of the contract will take place, andII.Before breach performance becomes impossible or only possible on a very different way to that contemplated without default of either party, and owing to a fundamental change of circumstances beyond the control and original contemplation of the parties”That the Respondents, due to the extenuating circumstance could not satisfy the financial obligation without the crippling of the Respondents Business or compromising on other saccos members deposits hence the contract performance was frustrated.The Respondent also submitted that this was a matter of public interest and was bound to affect the public at large.We have considered that the Written Submission of both parties and indeed, the parties agree that there was a valid contract in the first instance, and that there was non-performance which the Claimant avers as a breach of contract and the Respondent pleads the doctrine of frustration.The Claimant indeed deposited their investment with the Respondent, a fact that is not denied, and the Claimant avers unlawful non-remittance and breach of contract. The Respondent’s Defence is that the non-remittance was not unlawful or in bad faith, which we have confirmed inter-alia, and that there was no breach but frustration to perform.Indeed, we have noted the evidence on record, the documents produced and the Submissions of the parties and note that the Defence of the Respondents holds water, owing to the circumstances in which the Respondent found itself as a result of its mismanagement, a fact that is on public knowledge and that is being investigated and under the jurisdiction of another court.In the circumstances, we find that the Respondents position changed owing to the liquidity issues, despite there being a presumption of all matters would remain constant after the contract was entered into. The circumstances changed dramatically over a period of time after the parties entered into contractual obligation and the Respondent found itself in a different portion, not contemplated during the time of entering into the contract.The Respondent therefore was not able to meet its contractual obligation, not as a result of unlawful neglect, but as a result of change in the fundamental state which was the basis and foundation of the contract: viz financial stability/liquidity.We find that the Respondent had not contemplated this fact at the time of the maturity of the investment to the discovery of the financial mismanagement, the reconstitution of the Board from the electoral Board.We find indeed the interim Board brought all the rules to the table for negotiation and or resolution and they met the affected Saccos, which included the Claimant, but by the time of meeting and reaching the agreement and /or “resolution ”, this matter had already been filed before the Tribunal.In essence, the doctrine of frustration therefore is expressed in this circumstance as the excuse for non-performance as held in KENYA AIRWAYS CASE (SUPRA)We also note that this matter is of great public interest since decision herein will not only affect the Claimant herein but also members of even the other 177 Saccos who are members.We therefore find that the doctrine of frustration is therefore applicable hence the Respondent did not willingly fail to perform, but found itself in extenuating circumstances which were not contemplated. We therefore find that the non-performance was not a breach of contract, hence the Claimant t is not entitled to damages as a result of the Defence of frustration.The prayer for damages therefore fails.

Issue 3 On costsSection 27 Civil Procedure Act is clear that costs follow the events and awarding of costs is a discretion of the court.The Claimant has proved that they are entitled and the remittance of their deposits, a fact not denied by the Respondent, therefore, they are successful in the claim and we therefore award, the costs with interest at Tribunal Rates in the claim from the date of filing claim.In conclusion, the Claim succeeds in the following prayers:Judgment is entered in favor of the Claimant herein in the following terms:a.Kshs. 88,951,375 being the investment and Kshs. 6,089,643 being the interest total Kshs. 95,041,018b.Prayer for damages for breach of contract fails.c.Interest on (a) at Tribunal Rates from the date of filing the claim plus costs of the claim therein.

JUDGMENT SIGNED, DATED AND DELIVERED VIRTUALLY AT NAIROBI THIS 29TH DAY OF APRIL, 2025. HON. B. KIMEMIA CHAIRPERSON SIGNED 29. 4.2025HON. J. MWATSAMA DEPUTY CHAIRPERSON SIGNED 29. 4.2025HON. BEATRICE SAWE MEMBER SIGNED 29. 4.2025HON. FRIDAH LOTUIYA MEMBER SIGNED 29. 4.2025HON. PHILIP GICHUKI MEMBER SIGNED 29. 4.2025HON. MICHAEL CHESIKAW MEMBER SIGNED 29. 4.2025TRIBUNAL CLERK JEMIMAHMs. Wainaina advocate present for ClaimantMs. Gatwiri holding brief for Wairoto advocate for RespondentMs. Gatwiri for Respondent- I pray for 45 days stay of execution.Ms. Wainaina advocate - We object they can be granted 30 days stay of execution,Order- 30 days stay of execution granted.HON. B. KIMEMIA CHAIRPERSON SIGNED 29. 4.2025