https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/8656

**REPUBLIC OF KENYA** **IN THE HIGH COURT OF KENYA AT NAIROBI** **MILIMANI LAW COURTS** **COMMERCIAL AND TAX DIVISION** **COMM CASE NO. E212 OF 2020** **BETWEEN** **THIKA COFFEE MILLS LIMITED................................................................PLAINTIFF** **AND** **BUCHANA COFFEE GROWERS** **CO-OPERATIVE SOCIETY LIMITED.................................................1ST DEFENDANT** **GABRIEL GAITHO………………………………………………….2ND DEFENDANT** **JOHN GATHANJU………………………………………………...3RD DEFENDANT** **JAMES MUHINDI………………………………………………….4TH DEFENDANT** **JOSEPH MBURU NDEKEI…………………………………………5TH DEFENDANT** **SAMUEL MWAURA KARIUKI…………………………………….6TH DEFENDANT** **JOSEPH NGUGUNA KIOGORA………………………………….7TH DEFENDANT** **JUDGMENT** **Introduction and Background** 1. By a Plaint dated 15th June 2020, the Plaintiff filed the present suit stating that it is registered under the repealed ***Coffee Act*** and subsequently the ***Crop Act (Chapter 318 of the Laws of Kenya)*** to carry on the business of a commercial coffee miller which authorizes it to conduct the business of milling coffee at a fee; a warehouseman with a licence authorizing it to conduct the business of warehousing coffee and management Agent; and a coffee trader with a licence authorizing it to buy clean coffee from the Exchange for export, local sale or value addition or import clean coffee for secondary processing in Kenya. 2. The Plaintiff avers that on or about 25th July 2012, the Defendants appointed it as their sole miller, crop developer, and marketing agent for 3 years and on 26th June 2014, they entered into a Crop Advance Agreement with the Plaintiff advancing them USD 92,392.23 at 18% interest per annum (“the Agreement”). Key terms of the Agreement were that the Defendant would repay the advance plus interest through deductions from coffee sale proceeds, the Plaintiff would hold a lien on all coffee delivered until full repayment, the Defendants would issue irrevocable instructions for the Plaintiff to recover the amount from coffee sales and the Agreement was to be registered with the Coffee Directorate to ensure all coffee was delivered to the Plaintiff. 3. The Plaintiffs claim the Defendants failed to deliver coffee for the 2013/2014 season and subsequent years to the Plaintiff and instead, they illegally diverted the coffee to *Sasini Limited* for milling and marketing and they allegedly colluded with licensing authorities to obtain movement permits for the coffee to go to another entity, effectively stealing the Plaintiff’s investment. That although the Defendants acknowledged the debt of USD 92,392.23 and promised to pay, they later, in a letter dated 12th June 2019 sought a total waiver of the amount. As of 31st January 2020, the Plaintiff claims losses of business income for losses for breach of contract for the principal sum of USD 92,392.23, accrued interest of USD 154,387.96 from 30th June 2014 to 31st January 2020. 4. For these reasons, the Plaintiff prays for judgement against the Defendants jointly and severally for: 5. *A declaration that the defendants breached the terms of the Crop Advance Agreement dated 26th June 2014.* 6. *Payment of the sum USD 253,156.79/- being the sum owing to the plaintiff as at 31st January 2020.* 7. *Interest on (b) above at 18% p.a from 31st January 2020 until payment in full.* 8. *An order of permanent Injunction does issue compelling the defendant to deliver all its coffee harvest to the plaintiff until payment in full of all the monies owing to the plaintiff.* 9. *General damages for losses suffered by the plaintiff;* 10. *Loss of business income;* 11. *costs of this suit;* 12. *interest on(e), (f) and (g) above at court rates;* 13. *Such further or other orders as this Honorable Court may deem just and expedient in the circumstances* 14. The 1st Defendant, a co-operative society registered under the ***Co-operative Societies Act(Chapter 490 of the Laws of Kenya)*** under certificate number CS/7648 dated 3rd November 1995(“the Society”) responded to the suit through the Further Amended Statement of Defence and Counterclaim dated 15th June 2023. The Society denies liability and avers that the Plaintiff’s claim is based on unfair, coercive, and unlawful practices. That the Plaintiff introduced an Improve Production, Improve Quality (IPIQ) program for farm chemicals/inputs where 483 members subscribed, and the Plaintiff advanced USD 122,952.88 worth of chemicals. That instead of recovering the loan over three years as agreed, the Plaintiff fully recovered the loan in the first year by illegally charging the Society’s account. 15. The Society claims that as of June 2014, when the disputed USD 92,392 loan was taken, the Plaintiff had sold coffee worth USD 104,675 belonging to the Society and therefore, the Plaintiff actually owed it USD 12,283. The Society further claims that the Plaintiff allegedly put it under extreme pressure, leaving it with no money to run operations and the Agreement was signed under coercion, duress, and undue influence. The Society asserts there was no freedom of contract, and the interest charged is unlawful and it denies that there was any valid resolution or consent from its members to authorize the Agreement. 16. The Society further states that chemicals valued at USD 61,283 were returned to the Plaintiff, as acknowledged in the Plaintiff’s own letter dated 23rd May 2014 and that the Plaintiff has refused to provide proper accounts for coffee parchment delivered and proceeds received. The Society further states that the Plaintiff has failed to account for fertilizers and inputs delivered between 2011 and 2012. 17. In its counterclaim, the Society accuses the Plaintiff of levying illegal/unlawful deductions with excessively high interest rates, infringing on the Society’s freedom of contract, fraudulently converting individual farmers’ debt into the Society’s debt without consent, abusing its dominant market position as sole marketer/seller to coerce the loan, setting up a debt trap arrangement through coercion and undue influence, refusing to provide true accounts of coffee parchment delivered and refusing to account for and pay the true value of returned chemicals. 18. As such, the Society seeks payment of USD 45,212, a declaration that the Agreement is unconscionable and contravenes the ***Constitution*** and the ***Consumer Protection Act***, an order that the Agreement be rescinded, an order that accounts be taken, general damages under the ***Consumer Protection Act(Chapter 501 of the Laws of Kenya)***, interest on the awarded amount until payment in full and costs of the suit. 19. The 2nd, 3rd and 4th Defendants, who were former and current officials of the Society at the material time, responded to the suit through the statement of defence and counterclaim dated 27th August 2020. They deny personal liability stating that the Agreement existed only between the Plaintiff and the Society and not with them individually. They aver that they were not privy to the Agreement in their individual capacities as they were merely officials of the Society at the time, that the Agreement is not servitude as parties are entitled to freedom of contract and the Society, as a consumer of the Plaintiff's services, is entitled to protection of its economic interests against unconscionable contracts like the Agreement. 20. They contend that the Plaintiff did not properly account for coffee procured from farmers under the IPIQ programme including early crop picks, or parchment delivered. That the interest charged is impossible and unfair and they urge the court to invoke **Article 46** of the ***Constitution*** and the ***Consumer Protection Act*** to rescind the Agreement. 21. In their counterclaim, the 2nd , 3rd and 4th Defendants as members of the Society, repeat that the Agreement contravenes **Article 46** of the ***Constitution*** and the ***Consumer Protection Act*** and that it is unconscionable, fraudulent, unfair, unreasonable, unjust, deceptive, misleading, and therefore illegal. They aver that under **section 84** of the ***Consumer Protection Act***, the members of the Society are entitled to recover full payment for coffee parchment delivered to the Plaintiff between 2010 to date, less the value of farm implements and inputs received. They thus seek a declaration that the Agreement is unconscionable and contravenes the ***Constitution*** and the ***Consumer Protection Act***, an order that the Agreement be rescinded absolutely and an order that accounts be taken or an inquiry into accounts for profits made by the Plaintiff from coffee parchments/deliveries from 2010 to date and payment to the Society less reasonable costs and profits to the Plaintiff. They also seek damages. 22. The 5th, 6th and 7th Defendants responded to the suit through the statement of defence dated 24th August 2020 where they deny liability on the ground that they were not in office when the alleged events took place. They aver that they were elected as officials of the Society on or about the year 2019 and they are strangers to the averments of the Plaintiff because the alleged breach and loan agreement occurred before they assumed office. They deny the particulars of breach of contract and fraud as claimed by the Plaintiff and they deny ever acknowledging the existence or payment of the alleged debt and instead, they state that the Plaintiff failed to provide the Society with statements of accounts despite requests. As such, they pray that the Plaintiff's suit be dismissed with costs. 23. When the matter was set down for hearing, the Plaintiff presented its Field Operations Manager, David Kimotho (PW 1) who relied on his witness statement dated 15th December 2020 and produced the Plaintiff’s List and Bundle of Documents of the same date (PExhibit 1-44). Also called as a witness was Titus Ndungu Machanga, the Plaintiff’s Mills Accountant (PW 2) who relied on his witness statement dated 8th December 2020. On their part, the 2nd Defendant testified on behalf of Defendants (DW 1) relying on his witness statement dated 15th October 2020 and he produced the List and Bundle of Documents dated 9th September 2020(DExhibit 1-34). They also called CPA Lucas Mwangi Njoroge, an accountant at *M/s Jayvin &* Associates (DW 2) and he produced the audit reports dated 6th July 2022 and 31st May 2023(DExhibit 35 & 36) and; Kinyanjui Manga, the Society’s former Vice Chairman (DW 3) who relied on his witness statement dated 15th October 2020. 24. After the hearing, the parties were directed to file written submissions which are on record and since they reflect the parties’ positions I have summarized above, I will not rehash the same but I will make relevant references in my analysis and determination below. **Analysis and Determination** 1. As this are civil proceedings, I am cognizant that the standard of proof is that of a “balance of probabilities.” This means that the Court will assess the oral, documentary and real evidence advanced by each party and decide which case is more probable. To put it another way, on the evidence, which occurrence of the event was more likely to happen than not (see **Mumbi M'Nabea v David M.Wachira [2016] KECA 773 (KLR)].** Further, **section 107(1)** of the ***Evidence Act*** ***(Chapter 80 of the Laws of Kenya)*** provides as follows: *“Whoever desires any court to give judgment as to any legal right or liability dependent on the existence of facts which he asserts must prove that those facts exist.”* 1. The above provision provides for the legal burden of proof. However, **section 109** of the same ***Act*** provides for the evidentiary burden of proof and states as follows:- *“The burden of proof as to any particular fact lies on the person who wishes the court to believe in its existence, unless it is provided by any law that the proof of that fact shall lie on any particular person.”* 1. This position was re-affirmed by the Court of Appeal in **Maria Ciabaitaru M’mairanyi & Others v Blue Shield Insurance Company Limited -Civil Appeal No. 101 of 2000 [2005] 1 EA 280** where it was held that: *“Whereas under section 107 of the Evidence Act, (which deals with the evidentiary burden of proof), the burden of proof lies upon the party who invokes the aid of the law and substantially asserts the affirmative of the issue, section 109 of the same Act recognises that the burden of proof as to any particular fact may be cast on the person who wishes the Court to believe in its existence.”* 1. With the above principles in mind, I now proceed to determine this matter and 2. from the parties’ submissions, I find that these are the abridged issues for determination: 3. *Whether the Defendants breached the Agreement* 4. *Are the Defendants liable to pay the sum of USD 253,156.79 with interest to the Plaintiff?* 5. *Whether the Plaintiff is entitled to the reliefs sought, including principal, interest, loss of income, damages, injunction and costs.* 6. *Whether the Defendants are entitled to the orders sought in the Counterclaims.* 7. *Which party is liable to the costs of this case.* **Breach of the Agreement** 1. The Plaintiff firmly positions that a valid contract existed through the Agreement that was fundamentally breached by the Defendants. That the Plaintiff advanced a principal sum of USD 92,392.23 at a contractual interest rate of 18% per annum and the Agreement was executed on behalf of the Society by the 2nd, 3rd and 4th Defendants who possessed the authority to bind the Society. Under the Agreement, the advance was secured by the hypothecation of the Society’s coffee to the Plaintiff which was designated as the exclusive miller and marketing agent, with the debt to be extinguished through outright deductions from coffee sale proceeds. That to safeguard this, the Agreement was registered with the Coffee Directorate to ensure movement permits were only issued in favor of the Plaintiff. 1. The Plaintiff submits that despite this regulatory and security framework, and while the USD 92,392.23 advance remained unpaid, the Defendants diverted the hypothecated coffee to a third party, *Sasini Limited* and that DW 1, in his own testimony, admitted that coffee was taken to *Sasini*, resulting in a double payment. It also submits that this diversion violated **Regulation 15(2) and 15(9)** of the ***Crops (Coffee) (General) Regulations 2012***, which prohibit moving coffee without an original movement permit and that by using the secured coffee to gain value from a third party, the Defendants deprived the Plaintiff of its security and contracted business, constituting a fundamental breach. 2. On their part, the Defendants submit that the entire relationship and the Agreement are the product of a predatory “triple-role” arrangement in which the Plaintiff simultaneously acted as the lender/financier, miller, and marketing agent. That this vertical integration gave the Plaintiff total control over the Society’s coffee proceeds through irrevocable instructions, creating a “debt trap” that was unconscionable, ultra vires, and in breach of statute and public policy. They contend that the Plaintiff occupied a unique dominant position in the coffee value chain and that by controlling milling, marketing and financing, it exercised total control over the Society’s cash flow which constitutes abuse of dominant position under **section 24** of the ***Competition Act*** 3. The Defendants submit that the IPIQ programme was originally a personal facility requested by only 483 members out of 2,000 members as evidenced by sample forms on pages 42–49 of the DExhibit 1-34) and the testimony of DW1, DW2 and DW3. That in an alleged abuse of dominance, the Plaintiff illegally lumped the entire USD 122,952.88 IPIQ debt onto the accounts of the whole Society, making every member liable for a facility extended to a small minority which was never ratified by the Annual General Meeting (AGM). 1. The Defendants contend that the Plaintiff then used its control over proceeds to enforce hastened recoveries, completing a three-year recovery plan in just 13 months which created an artificial cash-flow crisis that forced the Society into a vicious cycle of nine successive operational loans, culminating in the Agreement. Further, the Defendants submit that the 18% p.a. compound interest is described as predatory in the coffee sector, where farmers receive proceeds annually, not monthly, a fact the Plaintiff allegedly acknowledged but ignored. They assert that the Agreement was signed under economic duress to prevent total operational collapse of the Society’s three factories and amid threats to the officials’ personal safety from aggrieved non-IPIQ members. The Plaintiff also allegedly failed to credit the Society for USD 50,000 worth of chemicals returned in April 2012. 2. I have gone through the pleadings, the evidence and submissions of the parties on this issue. Before even determining whether the Defendants were in breach of the Agreement, the court has been called to first determine its conscionability. The Court of Appeal, in **Criticos v National Bank of Kenya Limited (as the successor in business to Kenya National Capital Corporation Limited “Kenyac”) & another [2022] KECA 870 (KLR)** held as follows: *44. This Court has never shied away from interfering with unconscionable contracts. In Kenya Commercial Finance Company Ltd vs Ngeny & Another [2002] 1KLR it stated:* *“The court will not interfere where parties have contracted on arms-length basis. However, by its equitable jurisdiction, this court will set aside any bargain which is harsh, unconscionable and oppressive or where having agreed to certain terms and conditions, thereafter imposes additional terms upon the other party. Equity can intervene to relieve that party of such conditions”.* *45. Halsbury’s Laws of England Volume 22 (2012) 5th Edition at Paragraph 298 states of unconscionability:* *“Even in the absence of duress of persons or undue influence, there has long been jurisdiction to interfere with harsh and unconscionable transactions in several different areas of the law: for instance, in respect of salvage agreements; or against contractual penalties, of forfeiture of mortgages, loans expectant extortionate or heirs. ... The jurisdiction of the courts to set aside is based on unconscientious conduct by the stronger party; relief will not be granted solely on the grounds that the transaction is unfair or improvident”.* *46. Finally on unconscionability, this Court in the Margaret Njeri Muiruri case (supra) stated:* *Courts have never been shy to interfere with or refuse to enforce contracts which are unconscionable, unfair or oppressive due to a procedural abuse during formation of the contract, or due to contract terms that are unreasonably favourable to one party and would preclude meaningful choice for the other party. An unconscionable contract is one that is extremely unfair. 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. (See Black’s Law Dictionary, 9th Edition, Gardner, Ed.)””.* 1. It was not disputed, or rather, the Plaintiff admitted through PW 1 that it occupied a triple role of miller, marketer and financier making them the controller of the entire coffee value chain and an evidently dominant player in the relationship. It was also not disputed that the Plaintiff recovered the entire IPIQ loan of USD 122,952.88 in 13 months instead of 3 years which naturally created a cash-flow crisis that forced the Society to take the June 2014 loan and 8 other successive loans. PW 2 stated that they have been able to recover USD 383,467.57 which was a principle of 92,392.23 and interest of USD 291,575.30 and that as of the date of his testimony, the Society owed USD 565,547 composed of a principal of USD 92,392.23 and accrued interest of USD 473,154.77. This is clearly outrageous and unconscionable and it would appear that the structure of the loans was designed to keep the Society perpetually indebted. 2. In my view, this is not a case of a farmer borrowing and refusing to repay but a case of a powerful miller entrapping a cooperative society in a cycle of debt. I am in agreement with the Defendants that the interest rate of 18% p.a. in the coffee sector context, where farmers receive proceeds annually, not monthly was predatory and was designed to forever hook the Society in debt. In their testimonies, DW 1, DW 2, and DW 3 all described the farmers as elderly and illiterate and that the IPIQ program forms found at pages 42-49 of DExhibit 1-34) were likely filled out by individuals who may not have understood the terms or by staff of the Society. It is also clear that the interest on returned chemicals continued to accrue at 18% despite the chemicals being returned and the Plaintiff acknowledging that it owed the Society USD 26,113.71 being the value of the returned chemicals (see pg. 108 of DExhibit 1). The evidence and reports of DW 2 also indicates that the Plaintiff made recoveries nearly equal to disbursements and if the Plaintiff has already recovered its money and potentially more through interest, then the continued claim for USD 253,156.79 is unconscionable. Furthermore, due to the Plaintiff’s dominance in its relationship with the Defendants, the Society has nowhere else to go. The Plaintiff controlled the movement permits for coffee, it was the only licensed miller in the area and had a lien on all coffee by the Society. 3. Further, **section 28(3)** of the ***Co-operative Societies Act(Chapter 490 of the Laws of Kenya)***. *The Committee shall be the governing body of the society and shall, subject to any direction from a general meeting or the by-laws of the co-operative society, direct the affairs of the co-operative society with powers to—* *(a) enter into contracts;* *(b) institute and defend suits and other legal proceedings brought in the name of or against the co-operative society; and* *(c) do all other things necessary to achieve the objects of the co-operative society in accordance with its by-laws.* 1. The Society’s by-laws at Clause 21(a) also provides that “*Loans may be obtained from members and financial institutions subject to the limit set by the General Meeting and approved by the Commissioner.*” PW 1 admitted that the Plaintiff was aware that the Society's borrowing limit was fixed at Kshs.10,000,000.00/= as evidenced by the AGM resolution dated 15th May 2013 (see pg.37 of PExhibit 1-44). The cumulative loans far exceeded this amount and there was no AGM resolution produced by the Plaintiff indicating that the Society authorized the June 2014 loan. The Plaintiff was also aware that the IPIQ loan was not for all members of the Society but 483 of them. The Plaintiff held a lien on all Society coffee including coffee from non-IPIQ farmers who had no knowledge of the loan and it gave itself the power to recover the entire loan from coffee proceeds, with no oversight or control by the Society. With all these information and knowledge, the Plaintiff still advanced loans that exceeded the statutory limit and forced the Society into dependency. 2. In the end, I find that evidence shows that USD 559,092.97 was disbursed over the nine loans and the USD 543,021.97 was recovered by the Plaintiff (See pg. 33 of DExhibit 36). From this, the Plaintiff has made almost all of its money back but still pursues USD 253,156.79 based on procedural and substantive unconscionability. Even if the court does not accept the Defendants’ audit's exact figures, it demonstrates that the Plaintiff has recovered substantially all of its money, the claim for USD 253,156.79 is wildly disproportionate and the Plaintiff has been more than adequately compensated. I thus find that the Agreement was harsh, unconscionable and oppressive and in the exercise of the court’s equitable jurisdiction, I set it aside for those reasons. The court also declines to enforce the punitive interest terms and I find that the Plaintiff has been fully compensated 3. On the counterclaims, I find that the same cannot be granted because the Defendants have not provided specific evidence of losses to deserve the general and specific damages they seek. They still accepted advances from the Plaintiff and failed to properly account for them and had it not been for the unconscionability of the Agreement, they would have been liable to repay any sums owing. Having found that the Plaintiff has been fully compensated already based on what they have recovered, I find that this matter is closed with neither party owing the other and neither party deserves further relief. **Conclusion and Disposition** 1. In the upshot, I now dismiss the suit and counterclaims with no order as to costs. **DATED SIGNED and DELIVERED virtually at NAIROBI this 19TH DAY of JUNE 2026** **............................................................................** **J.W.W. MONGARE** **JUDGE** **IN THE PRESENCE OF** 1. Ms. Ithondeka for the Plaintiff. 2. Mr. Mulala for the 1st-4th Defendants. 3. N/A for the 5th - 6th Defendants. 4. Amos - Court Assistant