https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/6973

REPUBLIC OF KENYA IN THE HIGH COURT OF KENYA AT NAIROBI COMMERCIAL AND TAX DIVISION CORAM: F. MUGAMBI, J CIVIL CASE NO. 80 OF 2014 BETWEEN YOUTH ENTERPRISE DEVELOPMENT FUND BOARD ...................................................... PLAINTIFF INDO AFRICA FINANCE COMPANY LIMITED …... DEFENDANT AND JUDGMENT Introduction and Background 1. The Plaintiff instituted the present proceedings by way of a Plaint dated 4th March 2014. In its pleadings, the Plaintiff avers that it is a state organ mandated to implement, inter alia, a Credit Guarantee Scheme (hereinafter “CGS”) designed to facilitate and promote youth enterprises. Pursuant to this mandate, the Plaintiff and the Defendant entered into a Deed of Guarantee on 12th November 2012, for a contractual term of 5 HCCCOMM 80 OF 2014 JUDGMENT Page 1 years. Under the said Deed, the Defendant undertook to furnish a bank guarantee in the sum of Kshs. 150,000,000.00 as security. 2. The Plaintiff further pleads that in performance of its obligations, it duly released the sum of Kshs. 150,000,000.00 into the Defendant’s Co-operative Bank account, with the express requirement that the Defendant remit the said funds to ABC Bank for purposes of activating the bank guarantee contemplated under the Deed. However, the Plaintiff asserts that the Defendant failed, neglected, and/or refused to remit the funds as stipulated, thereby rendering the bank guarantee inoperative and defeating the very object and purpose of the Deed of Guarantee. 3. The Plaintiff avers that the Defendant failed to secure and maintain a valid bank guarantee for the entire contractual period of 5 years, notwithstanding the receipt of the requisite funds. The Plaintiff further asserts that the Defendant misrepresented the existence and validity of the bank guarantee for more than 8 months before ABC Bank formally confirmed that no effective guarantee had been established. The Plaintiff HCCCOMM 80 OF 2014 JUDGMENT Page 2 maintains that the Defendant cannot shift responsibility to the Plaintiff, as the Plaintiff’s role was limited to disbursing the funds into the account specified by the Defendant, and it was incumbent upon the Defendant to ensure proper transfer and activation of the guarantee. 4. Accordingly, the Plaintiff prays for judgment against the Defendant and seeks the following orders: i. An injunction to restrain the Defendant from withdrawing, transmitting out or paying out any funds or in any way dealing with its bank account number 0113*******02 at Co-operative Bank of Kenya, Westlands branch or at any other bank accounts maintained by the Defendant at other banks except for purposes of repaying to the Plaintiff the sum of Kes. 150 million. ii. Specific performance of the said Deed of Guarantee dated 12th November 2012 executed between the Plaintiff and the Defendant. HCCCOMM 80 OF 2014 JUDGMENT Page 3 iii. All necessary and consequential accounts and directions. iv. Repayment of the sum of Kenya Shillings One Hundred and Fifty Million (Kes. 150 Million). v. Interest at court rates. vi. Costs of the suit. 5. The Defendant entered appearance and filed its Defence and Counterclaim dated 29th April 2014. It concedes that it executed the Deed of Guarantee with the Plaintiff on 12th November 2012 for a period of 5 years under the CGS, and further admits that the Plaintiff advanced to it the sum of Kshs. 150,000,000.00. The Defendant, however, avers that it duly applied and fully utilized the said funds in lending to youth enterprises in accordance with the objectives of the CGS. It contends that a dispute subsequently arose regarding the bank guarantee procured from ABC Bank, which allegedly became ineffective owing to the Plaintiff’s unilateral action of remitting the funds to the Defendant’s Co-operative Bank account rather than directly to ABC Bank. HCCCOMM 80 OF 2014 JUDGMENT Page 4 6. The Defendant maintains that it had in fact procured a valid bank guarantee from ABC Bank in compliance with the Deed. It asserts that the Plaintiff’s deviation from the agreed payment route by transmitting the funds to the Defendant’s Co-operative Bank account instead of ABC Bank, undermined the condition precedent necessary for the guarantee to remain effective. The Defendant therefore argues that the Plaintiff cannot now impute liability upon it for a failure occasioned by the Plaintiff’s own conduct, and that any ineffectiveness of the guarantee was the direct consequence of the Plaintiff’s breach of the agreed funding mechanism. 7. The Defendant avers that when the difficulties with the guarantee initially procured from ABC Bank arose, it acted bona fide and in good faith by securing an alternative guarantee from Co-operative Bank. The Defendant contends that the Plaintiff, without any contractual justification, unreasonably rejected the said alternative guarantee, thereby obstructing performance under the Deed. HCCCOMM 80 OF 2014 JUDGMENT Page 5 8. It is the Defendant’s position that the rejection amounted to self-induced frustration, in that the Plaintiff’s own conduct prevented the fulfilment of the contractual obligations, and anticipatory repudiation, in that the Plaintiff’s actions signified an unwillingness to accept performance. The Defendant submits that the Plaintiff cannot be permitted to benefit from its own conduct which undermined the contractual arrangement. The Defendant further pleads that it duly performed its obligations under the Deed by disbursing a total of Kshs. 581,540,000.00 to youth beneficiaries. It asserts that it maintained proper audit trails and submitted periodic returns to the Plaintiff, during which time the Plaintiff raised no contemporaneous objections. 9. Finally, the Defendant contends that the Deed of Guarantee expired by effluxion of time in November 2017, and therefore the Plaintiff’s suit, filed thereafter, is largely academic and incapable of yielding any practical relief. 10. The Defendant claims a total of Kshs. 761,056,547.60 by way of counterclaim, being HCCCOMM 80 OF 2014 JUDGMENT Page 6 disbursement fees and interest on the Kshs. 750,000,000.00 contract value, a USD 595,238.09 deposit that was blocked/immobilized as a result of the Plaintiff’s rejection of the alternative guarantees, costs of procuring bank guarantees, reputational damage and loss of business opportunity. 11. During the hearing, the Plaintiff called Millicent Maina, its Senior Credit Officer, as PW1. She adopted her witness statement dated 4th March 2014 and produced in evidence the Plaintiff’s List and Bundle of Documents dated 4th March 2014 together with the Supplementary List and Bundle of Documents dated 1st August 2016, which were collectively marked as PExhibit 1. 12. On its part, the Defendant presented its Chief Executive Officer, Leon Muriithi Ndubai, as DW1. He relied upon his witness statement dated 29th April 2014 and tendered the Defendant’s List and Bundle of Documents dated 29th April 2014, marked as DExhibit 1, as well as the Further List and Bundle of Documents dated 6th May 2019, marked as DExhibit 2. HCCCOMM 80 OF 2014 JUDGMENT Page 7 13. Upon conclusion of the oral testimony, the Court directed the parties to file written submissions. The said submissions are duly on record. As they substantially reiterate the positions already set out in the pleadings and evidence summarized above, I shall not reproduce them in extenso. However, I will refer to the relevant portions thereof in the course of my analysis and determination that follows. Analysis and Determination 14. Having considered the pleadings, the evidence adduced, and the submissions of counsel, the following issues arise for determination: i. Whether there existed a valid and enforceable contract between the Plaintiff and the Defendant through the Deed of Guarantee, and if so, what were the terms? ii. Whether the Defendant breached the terms and conditions of the loan granted to it by the Plaintiff? iii. Whether the Plaintiff is entitled to the relief sought in the Plaint? HCCCOMM 80 OF 2014 JUDGMENT Page 8 iv. Whether the Defendant is entitled to the orders sought in the Counter claim? v. Which party is liable to the costs of this case? i. Existence of the Deed and its terms: 15. As indicated earlier, the Deed of Guarantee is admitted by both parties as the operative agreement governing their relationship. A close examination of the instrument reveals its salient terms. The Deed was to run for a period of 5 years from the date of execution, or for the duration of the bank guarantee furnished as security, less 15 days, whichever period was shorter. The total loan portfolio contemplated under the Deed was Kshs. 750,000,000.00, comprising Kshs. 150,000,000.00 to be invested by the Plaintiff in its capacity as guarantor, and Kshs. 600,000,000.00 to be invested by the Defendant as the Participating Financial Institution. 16. The Deed further stipulated the extent of the Plaintiff’s liability in respect of defaults. In relation to start-up enterprises, the Plaintiff was to cover 90% of defaults in the first year and eighty percent HCCCOMM 80 OF 2014 JUDGMENT Page 9 80% in subsequent years. For established enterprises, the Plaintiff’s coverage was seventy percent 70% in the first year and sixty percent 60% thereafter. To secure the Plaintiff’s contribution of Kshs. 150,000,000.00, the Defendant was obliged to provide a bank guarantee of an equivalent sum, covering the entire period of the Deed. The Deed expressly provided that should the bank guarantee fail to cover the full contractual period, renewal was to be effected not less than 30 days prior to expiry, failing which the Deed would terminate automatically. 17. The Deed further imposed upon the Defendant certain financial obligations ancillary to the guarantee. Chief among these was the requirement to pay a Guarantee Fee calculated at 0.75% of the loan portfolio, amounting to Kshs. 5,625,000.00. This fee was expressly stipulated to be payable immediately upon execution of the Deed, and disbursement of the Plaintiff’s contribution of Kshs. 150,000,000.00 was conditional upon proof of payment of the said application fee. HCCCOMM 80 OF 2014 JUDGMENT Page 10 18. In addition, the Defendant was obliged to pay an annual service fee equivalent to 1% of the loan portfolio at risk. This service fee was to be paid on the 30th day of the twelfth 12th month from the effective date of the Deed, and thereafter on each anniversary of the effective date. The Deed provided that in the event of default in payment of the annual service fee on the due date, the outstanding amount would attract a penalty for late payment at the rate of 6% per annum above the Central Bank of Kenya’s prime lending rate. 19. The Deed also made provision for repayment of the Plaintiff’s contribution. It stipulated that the Defendant was to repay the sum of Kshs. 150,000,000.00 within 7 days from the expiry or earlier termination of the Deed. In the event of default in repayment on the due date, the outstanding amount would attract penalty interest at the rate of 6% per annum above the Central Bank of Kenya’s prime lending rate until payment in full. 20. Termination of the Deed was governed by Clause 6.1.1. Under that clause, the Deed was to HCCCOMM 80 OF 2014 JUDGMENT Page 11 terminate automatically at midnight upon expiry of the Credit Guarantee Scheme. In addition, either party was entitled to terminate the Deed by written notice if the other party committed a material breach which was not remedied within 30 days of notice, entered into bankruptcy, had an administrator or receiver appointed, or exhausted the loan portfolio and failed to renew within 60 days. Beyond these specified events, the Deed also permitted either party to terminate the arrangement by giving 60 days’ written notice, even in the absence of breach or insolvency. 21. Therefore, upon a careful review of the pleadings, evidence, and submissions, I hold that the Deed of Guarantee executed between the parties on 12th November 2012 is valid and enforceable. Since the existence of the Deed and the contractual relationship are not matters in dispute, I proceed on the basis that a valid contract subsisted between the parties. In so holding, I am guided by the principle that where parties have freely entered into a contract, the Court’s role is to enforce the terms as agreed, unless vitiating factors are demonstrated. This position finds HCCCOMM 80 OF 2014 JUDGMENT Page 12 support in National Bank of Kenya Ltd V Pipeplastic Samkolit (K) Ltd & Another [2001] eKLR as well as Fahari Building and Civil Engineering Limited V Attorney General (Sued on behalf of the Ministry of Interior and Coordination of National Government and the Director of Kenya School of Government), KEHC 27541 KLR, where the Court affirmed that once the existence of a contract is admitted, the obligations arising therefrom must be enforced according to its terms. ii. Breach of the terms and conditions of the Deed: 22. The Plaintiff contended that the Defendant engaged in what it described as a calculated pattern of misconduct, through contractual breaches and fraudulent concealment. It was the Plaintiff’s case that under the Deed, the Defendant was required to provide a valid bank guarantee in the sum of Kshs. 150,000,000.00 as a condition precedent to the Plaintiff’s liability. That although it duly remitted the said sum into a Co-operative Bank account nominated by the Defendant, the Defendant failed to transfer those funds to ABC HCCCOMM 80 OF 2014 JUDGMENT Page 13 Bank, which was a necessary step to activate and sustain the bank guarantee issued by ABC Bank. The Plaintiff argued that this omission rendered the guarantee ineffective ab initio. 23. Further, the Plaintiff submitted that the Defendant misrepresented the status of the guarantee leading both the Plaintiff and ABC Bank to believe that the guarantee was valid when, in fact, the underlying collateral had not been lodged. The Plaintiff averred that this conduct was misrepresentation by omission, asserting that the Defendant deliberately failed to disclose that the ABC Bank guarantee was contingent upon the remittance of funds to ABC Bank. In the Plaintiff’s view, these actions and omissions constituted a breach of the express terms of the Deed and amounted to fraudulent concealment, undermining the very foundation of the contractual arrangement. 24. On its part, the Defendant contends that it duly procured a bank guarantee from ABC Bank in compliance with the Deed. However, it argues that the Plaintiff unilaterally deviated from the agreed arrangement by disbursing the Kshs. HCCCOMM 80 OF 2014 JUDGMENT Page 14 150,000,000.00 to the Defendant’s Co-operative Bank account rather than directly to ABC Bank. The Defendant maintains that this deviation is what frustrated the efficacy of the guarantee, and that the Plaintiff cannot now allege breach when its own conduct undermined the contractual mechanism. The Defendant further asserts that notwithstanding the Plaintiff’s obstruction, it fulfilled its contractual obligations by disbursing the Kshs. 150,000,000.00 to youth and SMEs, maintaining audit trails, and submitting periodic reports until the Plaintiff’s abrupt and unlawful termination of the Deed in February 2014. 25. In addition, the Defendant submits that the suit is largely academic, given that the Deed expired by effluxion of time on 12th November 2017. It argues that the Deed was frustrated by the Plaintiff itself, since when issues arose with ABC Bank, the Defendant attempted to provide alternative guarantees from Co-operative Bank, Diamond Trust Bank (DTB), and Dubai Bank. The Plaintiff, however, rejected these alternatives on what the Defendant characterizes as “unilateral HCCCOMM 80 OF 2014 JUDGMENT Page 15 administrative decisions” rather than contractual grounds. 26. The Defendant suggests that the Plaintiff’s rejection of the alternative guarantees was not motivated by contractual fidelity but by extraneous considerations, including leadership transitions and political motivations. In the Defendant’s view, the Plaintiff was more interested in extricating itself from the Deed than in ensuring the success of the Credit Guarantee Scheme. 27. As stated, the Deed expressly required the Defendant to provide a bank guarantee covering the entire contractual period and securing the sum of Kshs. 150,000,000.00 advanced by the Plaintiff. The evidence shows that the Defendant procured a guarantee from ABC Bank dated 18th February 2013. However, that instrument contained a clear condition: ABC Bank’s liability was contingent upon receipt of the Kshs. 150,000,000.00 into the Defendant’s account number 99**********591 held at ABC Bank. HCCCOMM 80 OF 2014 JUDGMENT Page 16 28. It is not in dispute that the Defendant failed to ensure that the funds were remitted to the said ABC Bank account. Instead, the funds remained in the Defendant’s Co-operative Bank account. Consequently, ABC Bank, by its communication of 16th October 2013, alerted the Plaintiff that the guarantee was ineffective. The record further demonstrates that the Plaintiff afforded the Defendant multiple opportunities to rectify the situation, including a final demand dated 21st February 2014 requiring the Defendant to provide a replacement guarantee or otherwise cure the defect. The Defendant failed to comply. 29. PW1, Millicent Maina, testified that no valid replacement guarantee was ever received, and that the proposals made by the Defendant for a replacement were rejected because one of the suggested banks was facing liquidity challenges. In these circumstances, the Defendant’s failure to lodge the funds with ABC Bank and its subsequent inability to provide a valid replacement guarantee constituted a material breach of the Deed. Under Clause 6.1.2(a), such a breach, if not remedied within thirty (30) days of notice, entitled the HCCCOMM 80 OF 2014 JUDGMENT Page 17 Plaintiff to terminate the Deed. The Court therefore finds that the Defendant was in material breach of its obligations under the Deed. 30. From the evidence, it is also clear to the court that the Defendant engaged in misrepresentation and concealment. On 29th October 2013, after ABC Bank had already told the Plaintiff the guarantee was ineffective, the Defendant wrote back to the Plaintiff stating that "the bank guarantee was still in place and valid" and that it "had never acted in bad faith." This was demonstrably false as the Defendant knew from February 2013 that the funds had not been remitted to ABC Bank, which was fatal to the guarantee’s effectiveness, yet it concealed this fact from the Plaintiff for over eight months between February and October 2013. 31. In a letter dated 20th November 2013, ABC Bank explicitly stated to the Plaintiff that: “Indeed, Indo Africa Finance Limited did act in bad faith. They neglected to inform us that they had received the funds. They HCCCOMM 80 OF 2014 JUDGMENT Page 18 knowingly did not re-channel the funds to our account.” 32. This is evidence from ABC Bank itself that the Defendant acted in bad faith and misled both the Plaintiff and ABC Bank. 33. Further, the Defendant, by a letter dated 15th November 2012, expressly provided the Plaintiff with its Co-operative Bank account details for purposes of disbursement. The Plaintiff was contractually entitled to rely on these instructions and the Plaintiff has correctly submitted that there was no contract between the Plaintiff and ABC Bank as the Plaintiff’s obligation was to disburse funds to the account the Defendant nominated. The Defendant held both the Co-operative Bank account, where the money was sent and the ABC Bank account, where the guarantee required it. Nothing prevented the Defendant from internally transferring the Kshs. 150,000,000.00 from its Co- operative Bank account to its ABC Bank account and I find that its failure to do so was a deliberate choice. HCCCOMM 80 OF 2014 JUDGMENT Page 19 34. Therefore, the Plaintiff cannot be accused of contributory breach of the Deed for sending money to the Co-operative Bank account or unilateral change of terms of the Deed because it only acted as instructed. Upon discovering the problem in October 2013, the Plaintiff immediately demanded a valid guarantee or the return of funds which is conduct consistent with enforcing the Deed, not breaching it. It is impermissible for a party to instruct another to carry out an act, acquiesce in its performance, and subsequently contend that such conduct amounts to a breach or frustration of the contract. 35. The Defendant cannot claim frustration when it was its own subsequent inaction of failing to transfer the funds to ABC Bank and misrepresentation that caused the problem. DW 1 also testified that as per the pleadings in Indo Africa Finance Limited V ABC Bank, HCCOMM Case No. 410 of 2015; the Defendant and DW 1 himself deposed and blamed ABC Bank and not the Plaintiff for the loss of the loan portfolio of Kshs. 750,000,000.00. HCCCOMM 80 OF 2014 JUDGMENT Page 20 iii. Reliefs sought by the Plaintiff: 36. The Plaintiff contends that, following the Defendant’s breach of the Deed, it is entitled to repayment of the sum of Kshs.150,000,000 advanced, together with penalty interest at 6% per annum above the Central Bank of Kenya’s prime lending rate from the date of filing suit until payment in full. I find merit in this submission. In Youth Enterprise Development Fund Board V Rafiki Micro Finance Bank Limited, [2020] KEHC 2363 (KLR), Tuiyott J. (as he then was) faced with somewhat similar circumstances held that upon breach of the Deed, the Plaintiff was entitled to terminate the contract, and upon termination, the Defendant was obliged to repay the guaranteed sum within seven days, failing which it would incur penalty interest at 6% per annum above the prevailing CBK prime lending rate until payment in full. 37. This position was subsequently affirmed by the Court of Appeal in Rafiki Microfinance Bank Limited v Youth Enterprise Development Fund Board, [2024] KECA 239 (KLR), which is binding upon this Court. Guided by that authority, I HCCCOMM 80 OF 2014 JUDGMENT Page 21 accordingly enter judgment in favour of the Plaintiff against the Defendant for Kshs.150,000,000.00, together with interest at 6% per annum above the prevailing CBK prime lending rate from 14th May 2014, being the date of filing suit, until payment in full. The Plaintiff shall also have the costs of the suit. iv. Reliefs sought in the counterclaim: 38. Having found no fault attributable to the Plaintiff, I hold that the reliefs sought in the Defendant’s counterclaim are unsustainable. Indeed, DW1 conceded in evidence that the Term Sheet and Service Agreement relied upon by the Defendant make no reference to the Plaintiff. The alleged loss of Kshs.761 million cannot, therefore, be laid at the Plaintiff’s door, as no causal nexus has been established. DW1 further admitted that the Mandate to PKF Consulting Limited to source USD 22,000,000 was distinct from the sum advanced by the Plaintiff, was prospective in nature, and contained no reference to gemstones as security or to any default by the Plaintiff. It is manifest that the counterclaim is predicated upon inflated figures and transactions extraneous to the Plaintiff, HCCCOMM 80 OF 2014 JUDGMENT Page 22 and that the losses alleged are speculative projections rather than crystallized obligations. Accordingly, the counterclaim must fail. 39. DW1 further conceded that Kshs.85,000,000.00 of the sums allegedly lent out originated from the Defendant’s own fixed deposit fund and not from monies advanced by the Plaintiff. He also admitted that the Defendant had no evidence to substantiate the alleged balance of Kshs.500,000,000.00 said to have been lent out. The Defendant was claiming losses on its own capital as if it were the Plaintiff’s fault which is a fundamental misrepresentation. Lastly, as stated, in HCCC No. 410 of 2015, the Defendant and DW1 blamed ABC Bank and not the Plaintiff for the loss of the Kshs. 750,000,000.00 loan portfolio. This is fatal to the counterclaim as the Defendant cannot blame ABC Bank in one suit and the Plaintiff in another for the same alleged loss. Such conduct amounts to approbation and reprobation. 40. I am persuaded by the Plaintiff’s submission that in Vinayak V Santokh & 2 Others, [2023] KECA 1433 (KLR), the Court of Appeal affirmed that a HCCCOMM 80 OF 2014 JUDGMENT Page 23 claim for unjust enrichment arises where a party retains a benefit against conscience. In the present matter, the Defendant seeks to recover colossal sums from public funds for losses which, by its own admission in another suit, were occasioned by ABC Bank and not the Plaintiff, which it cannot demonstrate were actually incurred and which in part arise from its own capital rather than the Plaintiff’s advance. To permit such a claim would amount to unjust enrichment at the expense of the Kenyan public. The counterclaim is therefore devoid of merit and is hereby dismissed with costs to the Plaintiff. Conclusion and Disposition 41. Accordingly, I make the following dispositive orders: i. Judgment is hereby entered in favour of the Plaintiff against the Defendant for the sum of Kshs.150,000,000.00, together with interest at the rate of 6% per annum above the prevailing Central Bank of Kenya prime lending rate from 14th May 2014 until payment in full. HCCCOMM 80 OF 2014 JUDGMENT Page 24 ii. An injunction is hereby granted, limited to the decretal sum, restraining the Defendant from withdrawing, transferring, or otherwise dealing with funds held in account number 0113*******02 at Co-operative Bank of Kenya, Westlands Branch, or in any other bank accounts maintained by the Defendant, save for purposes of satisfying the judgment debt of Kshs.150,000,000 together with interest and costs as awarded herein. iii. The Defendant’s counterclaim dated 29th April 2014 is dismissed. iv. The Plaintiff shall have the costs of both the suit and the counterclaim. DATED, SIGNED AND DELIVERED IN NAIROBI THIS 21 ST DAY OF MAY 2026. F. MUGAMBI HCCCOMM 80 OF 2014 JUDGMENT Page 25 JUDGE Delivered in presence of: Ms Mwangi for Macharia for plaintiff Cheluget & Mungai for defendant Court Assistants: Lillian & Gloria HCCCOMM 80 OF 2014 JUDGMENT Page 26