https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/10506

Mdio & 2 others (Registered Officials of Wanidu (1998) Welfare Society) v Sidian Bank (Formerly K-Rep Bank Ltd) (Commercial Appeal E018 of 2021) [2026] KEHC 10506 (KLR) (Commercial and Tax) (14 July 2026) (Judgment) Neutral citation: [2026] KEHC 10506 (KLR) Republic of Kenya In the High Court at Nairobi (Milimani Commercial Courts) Commercial and Tax Commercial Appeal E018 of 2021 BK Njoroge, J July 14, 2026 Between Ernest Mdio 1st Appellant Deborah Mshai 2nd Appellant Harron Mwaisaka 3rd Appellant Registered Officials of Wanidu (1998) Welfare Society and Sidian Bank (Formerly K-Rep Bank Limited) Respondent (Being an appeal against the Judgment of the Hon. G.A. Mmasi (Mrs), Senior Principal Magistrate, made on the 5th day of February 2021 in Civil Suit No. 3211 of 2018 ERNEST MDIO and 2 others -versus- SISIAN BANK FORMERLY K-REP BANK LIMITED) Judgment 1.A commercial contract is not a sword of oppression. Similarly, an appeal is not an avenue to cure defective pleadings. This dispute tests the limits of a financial institution's contractual discretion to vary interest rates and repossess collateral.The core task before this Court is to determine whether the actions of the Respondent, Sidian Bank Limited, complied with statutory laws. Ultimately, the Court must determine whether the Appellants' pleadings permit the granting of any substantive relief. Background of Facts 2.The facts are largely uncontested. The Appellants are officials of Wanidu (1998) Welfare Society (the Society). They operated a current account at the Respondent's Kenyatta Market Branch. 3.On 25 August, 2008, the Respondent advanced a loan facility of Kshs. 2,400,000 to the Society. The purpose was to purchase a 33-seater commercial bus, registration KBE 361V. The motor vehicle was jointly registered as security. 4.On 31 January, 2011, the parties restructured the facility. The Respondent advanced an additional Kshs. 500,000 for a new engine. The total outstanding facility consolidated to Kshs. 1,748,914.69. The 2011 agreement contained strict default clauses. Special Conditions (c) and (r) purported to grant the Respondent the right to repossess and sell the vehicle without notice upon the default of two consecutive Instalments. It also empowered the Respondent to vary the interest rate at its sole discretion. 5.On 22 March, 2012, the Respondent's Branch Manager verbally advised the Society that they were in arrears. He demanded Kshs. 66,000 by the close of business on 30 March, 2012. He warned that failure to meet this deadline would lead to repossession. The Society was also informed that interest rates had been adjusted upwards. 6.The Society aggressively mobilized funds. They deposited Kshs. 43,500 by 29 March, 2012, and a further Kshs. 47,000 on 30 March, 2012. 7.Despite the 30 March deadline, the Respondent acted prematurely. On 29 March, 2012, the Respondent instructed Transfield Auctioneers Limited to attach the motor vehicle. The notification of sale did not specify the outstanding debt. 8.On 29 March, 2018, the Society filed Civil Suit No. 3211 of 2018 at the Milimani Commercial Courts. They sought Kshs. 12,145,000 in special damages for lost income. They argued the attachment was illegal and premature. 9.On 5 February, 2021, the Trial Court dismissed the suit. The Learned Magistrate held that the Respondent acted within its contractual rights. Grounds of Appeal and Reliefs Sought 10.Aggrieved, the Appellants filed this appeal citing three primary grounds:i.The Trial Magistrate erred in failing to note that the Respondent never notified the Appellants of the change in interest rates.ii.The Trial Magistrate erred in ignoring that the Appellants were never notified of the exact outstanding amount before attachment.iii.The Trial Magistrate erred in failing to account for the lack of notice of sale, which deprived the Appellants of the chance to redeem their investment. 11.The Appellants pray that the appeal be allowed, the Lower Court Judgement be set aside, and costs be awarded to them. 12.The Respondent vehemently opposes the appeal. They emphasize the sanctity of contract. They argue the Appellants defaulted on their monthly Instalments. This triggered Special Condition (r), empowering the bank to repossess the vehicle without notice. 13.The Respondent contends the interest rate applied was not a unilateral variation. It was the activation of a 5% default rate expressly provided for in the contract. 14.Relying on National Bank of Kenya Limited v Pipeplastic Samkolit (K) Ltd [2001] eKLR, the Respondent asserts that Courts cannot rewrite contracts. They maintain the attachment was lawful. 15.Finally, the Respondent argues the suit was time-barred under the Limitation of Actions Act, having been filed more than six years after the cause of action accrued. Issues for Determination 16.The Court frames the following issues:a.Whether the suit was barred by the Limitation of Actions Act.b.Whether the variation of the interest rate was lawful.c.Whether the repossession of the motor vehicle was lawful.d.Whether the Appellants proved their claim for special damages.e.What reliefs lie from this Appeal. Analysis 17.This is a first appeal. The mandate of this Court is to reconsider and evaluate the evidence and draw its own conclusions. This principle was settled in Selle v Associated Motor Boat Co of Kenya & others [1968] EA 123. (a) Whether the suit was barred by the Limitation of Actions Act. 18.The Respondent claims the suit was time-barred. Section 4(1)(a) of the Limitation of Actions Act (Cap 22) requires contract claims to be brought within six years. 19.The vehicle was attached on 29 March, 2012. This act constitutes the primary cause of action. The suit was filed on 29 March, 2018. Statutory time computation excludes the day the cause of action arose. The six-year period commenced on 30 March, 2012 and expired at midnight on 29 March, 2018. 20.The suit was filed exactly on the last day of the permissible window. Filing on the last day is a valid exercise of a statutory right. As held in Divecon Ltd v Shirinkhanu Sadrudin Samani [1995-1998] 1 EA 48, Courts cannot entertain suits brought after the limitation period. This suit was filed strictly within time. The Trial Court had jurisdiction. (b) Whether the variation of the interest rate was lawful. 21.The 2011 agreement indicated an interest rate of 21% per annum. The Respondent relies on a clause granting it sole discretion to vary the interest. 22.Contracts operate within statutory frameworks. Section 44 of the Banking Act (Cap 488) mandates that no institution shall increase its rate of banking or charges without the prior approval of the Cabinet Secretary for Finance. 23.The Supreme Court in Stanbic Bank Kenya Ltd v Santowels Ltd [2024] KESC 31 (KLR) settled this definitively. The term "rate of banking" covers interest rates on loans. Financial institutions must secure regulatory clearance before modifying lending terms. 24.Freedom of contract does not grant lenders unfettered discretion to impose arbitrary rates. The Court of Appeal in Muiruri (Being the administrator of the Estate of the Late Joseph Muiruri Gachoka - Deceased) v Bank of Baroda (Kenya) Ltd [2014] KECA 319 (KLR) held that discretion to vary interest cannot be exercised willy-nilly to charge exorbitant interest without notice. 25.The Respondent’s witness conceded that interest rates were increased without notifying the Appellants. There is no evidence that the Respondent obtained statutory approval. Failing to notify a borrower of a change in interest rates violates the principles of good faith. The variation of the interest rate was unlawful and unenforceable. (c) Whether the repossession of the motor vehicle was lawful. 26.The Respondent relies on Special Conditions allowing repossession without notice. A lender cannot contract out of mandatory statutory procedures. The Auctioneers Rules require a proclamation of attachment in writing and a seven-day notice period before attachment. These rules protect a debtor's equity of redemption. 27.Furthermore, the Respondent’s Branch Manager gave the Appellants a verbal deadline of 30 March, 2012 to clear arrears. The Appellants relied on this and aggressively deposited funds. Despite this assurance, the Respondent attached the vehicle on 29 March, 2012. 28.The Bank cannot give a borrower a deadline of Friday and seize their livelihood on Thursday. This breached the doctrine of promissory estoppel. The notification of sale also failed to indicate the exact amount outstanding. The repossession was procedurally flawed, unlawful, and amounted to wrongful conversion. (d) Whether the Appellants proved their claim for special damages. 29.The Appellants pleaded special damages of Kshs. 12,145,000 based on an alleged loss of income of Kshs. 7,000 per day. Special damages must be specifically pleaded and strictly proved. The Appellants relied only on limited Income and Expenditure sheets from late 2011. This is insufficient. The daily operations of a transport business are subject to fluctuations and risks. A claimant cannot rely on speculative mathematical projections over six years. The Court of Appeal in Kenya Breweries Limited v Kiambu General Transport Agency Limited [2000] KECA 417 (KLR) rejected claims for loss of profits based on theoretical forecasts. The claim for special damages was unproven and is hereby dismissed. (e) What reliefs lie from this Appeal. 30.This Court faces an agonizing legal dilemma. The Appellants suffered an unlawful repossession and illegal interest variations. However, they pleaded their case poorly. In their Plaint, they only sought special damages of Kshs. 12,145,000. They did not pray for general damages for conversion. They did not pray for the value of the motor vehicle sold. They did not pray for the remedy of taking of accounts. 31.Sympathy is not a legal remedy. A claim before a Court is anchored by the pleadings. As the Supreme Court affirmed in Independent Electoral and Boundaries Commission & another v Mule & 3 others [2014] KECA 890 (KLR), parties are bound by their pleadings. A Court cannot grant relief not specifically prayed for. 32.The Court has carefully weighed whether it can apply the exception in Odd Jobs v Mubia [1970] EA 476 to order a taking of accounts. However, looking at the trial as a whole, the exact state of the accounts was not sufficiently made the subject of the trial to invite this remedy. The Court does not act in vain. Granting unpleaded general damages or accounts would invite justifiable accusations of a judicial frolic. 33.The Appellants must contend with the outcome. They have received favourable pronouncements on the law, but the Court is hamstrung by their own defective pleadings from awarding any financial reliefs. 34.To the Respondent, let this be clear. The era of the draconian banker is over. The law will not shield a party that uses a commercial contract as an instrument of oppression. You cannot hide behind "sole discretion" clauses to evade statutory compliance. The power to lend does not confer the power to oppress. 35.The Trial Court erred in its legal evaluation of the Bank's conduct. However, this Court reaches the same ultimate verdict: the sole substantive relief pleaded—the special damages—remains unproven. The appeal must therefore fail on the merits of the reliefs sought. 36.As to costs, they lie at the discretion of the Court and ordinarily follow the event. However, given the blatant statutory breaches and bad faith exhibited by the Respondent, it would be unjust to award them costs. The Court reverses the order of costs in the lower court. Each party shall bear its own costs in both courts. Determination 37.Consequently, the appeal is unsuccessful. The Court makes the following orders: 1.The Appeal is hereby dismissed for lack of merit on the substantive reliefs sought. 2.The Judgement and decree of the Chief Magistrate’s Court at Nairobi Milimani Commercial Court in CMCC No. 3211 of 2018, delivered on 5 February, 2021, are HEREBY set aside and quashed only to the extent that they awarded costs to the Respondent. 3.The Court substitutes the Lower Court's decision on costs with an order that each party bears its own costs. 4.Each party is to bear its own costs in this Appeal. 38.It is so ordered. DATED, SIGNED AND DELIVERED AT MILIMANI THIS 14TH DAY OF JULY, 2026NJOROGE BENJAMIN K.JUDGEIn the presence of:Mr. Akolo for the Appellants.Miss Mwaura for the Respondent.Mr. John Paul - Court Assistant