REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA

AT MOMBASA

CIVIL NO. 43 OF 2019

MOMBASA HIGHWAY TRANSPORT CO. LIMITED.........PLAINTIFF

-VERSUS-

ASL CREDIT LIMITED........................................................DEFENDANT

JUDGMENT

[1] The plaintiff herein, Mombasa Highway Transporter Co. Ltd, filed this suit on 10^th June 2019. Its cause of action was that, on or about the year 2013, the plaintiff sought and obtained hire purchase facility from the defendant, ASL Credit Ltd, to enable it acquire trailers worth Kshs. 78 million. It was the contention of the plaintiff that it diligently serviced the facility and made the remittances when due until the year 2014 when it encountered financial challenges that caused delays in payment. The plaintiff further asserted that it nevertheless resumed payments, such that, by the end of 2019, the principal amount outstanding stood at Kshs. 1,481,361/=. It was however displeased by the fact that the defendant had loaded arbitrary interest on the account to the tune of Kshs. 31,108,591/=, in disregard of the Duplum Rule.

[2] Thus, it was the plaintiff’s contention that this arbitrary act on the part of the defendant had made it impossible to exercise its right of redemption. Consequently, it filed this suit seeking the following reliefs against the defendant:

[a] A declaration that the plaintiff is not entitled to levy any penalties whether described as ‘late payment charges’, ‘interest on arrears’, ‘default charges’, or whatever name so called, together with the cumulative interest thereon that the defendant had charged the plaintiff in the past; and that the same constitutes a fetter or clog on the plaintiff’s equity of redemption;

[b] a permanent injunction restraining the defendant either by itself, its agents, auctioneers, employees and/or servants from repossessing, attaching, advertising for sale and/or selling by way of public auction any of the plaintiff’s assets as long as the plaintiff continues to remit its monthly repayments;

[c] Costs and interest based on the prevailing commercial court rates at the date of filing suit;

[d] Any further relief that the Court may deem fit to grant.

[3] The suit was resisted by the defendant vide the Statement of Defence filed herein on 7^th August 2020. While conceding that it extended a hire purchase facility to the defendant as alleged in the Plaint, the defendant pointed out that the plaintiff thereafter approached it for restructure of the Hire Purchase Agreements Nos. 990/JUL12, 991JUL12, 1031/SEP12, 1042/SEP12 and 1405/AUG13; to which it acceded vide the Hire Purchase Agreement No. 1639/MAY14 (revised). The defendant further stated that the facility was for the purchase of 24 motor vehicles;

 and not 8 as pleaded by the plaintiff.

[4] The defendant denied the plaintiff’s assertion that it diligently paid its loan remittances; and pointed that the restructure was necessitated by the fact the plaintiff was woefully in arrears. It therefore asserted that, in spite of the restructure, the plaintiff consistently defaulted in making payments and deceitfully issued cheques to the tune of Kshs. 42,593,072/=, which were returned unpaid. It denied the allegation that it charged illegal and/or arbitrary interest on the facility; and asserted that all interest and penalty charges were contractual. Accordingly, the defendant denied that only Kshs. 1,481,361/= was due as pleaded in paragraphs 7, 8 9 and 10 of the Plaint.

[5] Consequently, by way of Counterclaim, the defendant reiterated that the subject facility was for Kshs. 65,662,628/= (cash price Kshs. 48,246,050/=, with Hire Purchase Charges of Kshs. 17,368,578/=, and Option Payment of Kshs. 48,000/=). The facility was to be repaid over 36 months in monthly instalments of Kshs. 1,882,629/=. The defendant further stated that it was a term of the Hire Purchase Agreement that any default in repayment of the instalments or late payments would attract a Late Payment Charge at the rate of 5% per month on the unpaid amount until full payment.

[6] As against the 2^nd, 3^rd and 4^th defendants in the Counterclaim, the defendant averred that they executed Personal Guarantee and Undertaking concomitantly with the execution of the Hire Purchase Agreement; and thereby guaranteed the repayment obligations of the plaintiff under the Agreement. Accordingly, the defendant contended that, upon default by the plaintiff, the respective liability of the guarantors crystalized to the tune of Kshs. 54,768,116/= as at 28^th May 2020; which sum continues to attract Late Payment Charge at the rate of 5% per month until full payment.

[7] Thus, the defendant contended that the plaintiff (1^st defendant in the Counterclaim) as well as the 2^nd, 3^rd and 4^th defendants in the Counterclaim are in breach of the express terms of the Hire Purchase Agreement as well as the Personal Deed of Guarantee and Undertaking; and are therefore liable to it in the sum of Kshs. 54,768,116/= together with interest thereon. Hence, the defendant prayed for judgment against the plaintiff and its co-defendants in the Counterclaim jointly and severally for:

[a] Kshs. 54,768,116/=,

[b] Late Payment Charge on [a] above at 5% per month from 28^th May 2020 until payment in full;

[c] Interest on [a] and [b] above at Court rates from the date of filing the Counterclaim until payment in full;

[d] Costs of the suit and the Counterclaim.

[8] It is not manifest whether a Defence was filed by the plaintiff to the Counterclaim; as there appears to be no such document on the court file. Nevertheless, the matter was certified ready for hearing and was consequently listed for hearing on 21^st October 2021. Since the record shows that there was no appearance for the plaintiff when the hearing date of 21^st October 2021 was taken, and because no Affidavit of Service had been filed to demonstrate that the plaintiff was duly notified of that hearing date, hearing was postponed to 11^th November 2021.

[9] Come the 11^th November 2021, the plaintiff was, once again, absent and unrepresented. This time round, an Affidavit of Service was availed in proof of service; and, as the defendant was present and ready to proceed, the Court allowed counsel’s prayer for the dismissal of the plaintiff’s suit pursuant to Order 12 Rule 13 of the Civil Procedure Rules; noting that the defendant admitted no part of the claim. The defendant was, in the same vein, ready and prepared to proceed ex parte with the hearing of the Counterclaim.

[10] In the premises, the Court allowed the application and dismissed the plaintiff’s suit with costs for want of prosecution; and proceeded to hear the defendant’s Counterclaim. The defendant called one witness, namely, Daniel Wandera, Advocate. He basically adopted his witness statement dated 3^rd August 2020 and produced the defendant’s List and Bundle of Documents filed on 7^th August 2020 as exhibits (marked the Defendant’s Exhibit 1).

[11] It was therefore the testimony of Mr. Wandera (PW1) that, pursuant to the Letter of Offer Ref. No. 1639/MAY14 (revised) dated 13^th June 2014, the plaintiff and the defendant entered into a Hire Purchase Agreement, whereby the defendant (the plaintiff in the Counterclaim, hereinafter the plaintiff) advanced to the plaintiff (1^st defendant in the Counterclaim; hereinafter the 1^st defendant) a Hire Purchase Facility of Kshs. 65,662,628/=. Mr. Wandera mentioned that the facility was granted at the request of the 2^nd, 3^rd and 4^th defendants on behalf of the 1^st defendant. In this regard, Mr. Wandera relied on the Memorandum of Understanding dated 15^th May 2014, Letter of Offer dated 13^th June, 2014 and the Hire Purchase Agreement dated 27^th June 2014, appearing in their List and Bundle of Documents as documents numbers 1, 2 and 3, respectively.

[12] Mr. Wandera further testified that, it was a term of the Hire Purchase Agreement that any default in repayment of the instalments or late payments would entitle the plaintiff in the Counterclaim to charge and recover from the 1^st defendant a Late Payment Charge at the rate of 5% per month on the unpaid amount until payment in full. He added that, because the 1^st defendant defaulted, neglected and/or ignored to honour the terms of the Hire Purchase Agreement by failing to pay the monthly instalments, the total amount outstanding as at 28^th May 2020 was Kshs. 54,768,116/=; which sum continues to accrue Late Payment Charge at the rate of 5% per month from 29^th May 2020. He further told the Court that the 1^st defendant issued cheques to the plaintiff which were returned unpaid, to the tune of Kshs. 15,952,863/=. Copies of the unpaid cheques were exhibited in the plaintiff’s Bundle of Documents marked Exhibit 1.

[13] As for the 2^nd 3^rd and 4^th defendants, Mr. Wandera testified that, in addition to signing the Hire Purchase Agreement on behalf of the 1^st defendant, they each signed a Personal Guarantee and Undertaking to guarantee the repayment obligations of the 1^st defendant in the Counterclaim. A copy of the duly executed Guarantee and Undertaking dated 27^th June 2014 was produced by Mr. Wandera as part of the Defendant’s Exhibit 1 as Document No. 4. He therefore urged the Court to find that the defendants in the Counterclaim are in breach of the Hire Purchase Agreement as well as the Personal Deed of Guarantee and Undertaking; and that they are liable to the plaintiff, jointly and severally, in the sum of Kshs. 54,768,116/= together with Late Payment Charges thereon at 5% per month from 29^th May 2020 until payment in full. Mr. Wandera therefore prayed that the judgment be entered for the plaintiff in the Counterclaim against the defendants jointly and severally, in terms of the prayers set out in the Counterclaim.

[14] Counsel for the plaintiff (in the Counterclaim) thereafter filed written submissions dated 21^st January 2022 and proposed the following issues for determination:

[a] Whether the 1^st defendant in the Counterclaim breached the terms of the Hire Purchase Agreement;

[b] Whether the 2^nd, 3^rd and 4^th defendants in the Counterclaim breached the terms of their Personal Guarantee and Undertaking;

[c] Whether the plaintiff in the Counterclaim is entitled to Late Payment Charges at 5% per month for breach; and,

[d] Whether the plaintiff is entitled to the costs of the suit.

[15] Thus, Ms. Mwangi for the plaintiff in the Counterclaim relied on the terms of the Hire Purchase Agreement in urging the Court to find that, although the facility was to be repaid in 36 months in instalments of Kshs. 1,882,629/=, the 1^st defendant defaulted in meeting its monthly obligations and thereby fell in arrears. The pertinent documents were produced herein by PW1 as part of the plaintiff’s Exhibit 1 in proof of the alleged breach. The documents included copies of dishonoured cheques issued by the 1^st defendant in payment of the instalments due to the plaintiff. Thus, counsel for the plaintiff relied on Equatorial Commercial Bank v Wilfred Nyasim Oroko [2015] eKLR for the holding that the onus was on the defendants to show circumstances which would disentitle the plaintiff to judgment; which the defendants failed to do.

[16] On the Late Payment Charges, Ms. Mwangi relied on Kanji Jadva Valji v Trinity Prime Investment Ltd & 2 Others [2014] eKLR and Abdul Jalis Yafai v Farid Jalil Mohammed [2015] eKLR for the proposition that it is not open to the Court to rewrite the contractual terms for the parties; and that the Court’s remit is limited to interpreting and giving effect to the intention of the parties as expressed in their contractual document. Counsel further took the view that from such interpretation, it is evident that the defendants were in breach of the Hire Purchase Agreement signed by the 1^st defendant as well as the Personal Guarantee and Undertaking issued by the 2^nd, 3^rd and 4^th defendants. She relied on Fidelity Commercial Bank Limited v Kenya Grange Vehicle Industries Limited [2017] eKLR and urged the Court to find that the mere fact of default by the 1^st defendant as the principal debtor is sufficient to attract liability on the part of the 2^nd, 3^rd and 4^th defendants in their capacity as guarantors.

[17] Ms. Mwangi further urged the Court to award costs and interest, including the Late Payment Charges, to the plaintiff. She relied on the Hire Purchase Agreement as well as Section 26(1) and 27 of the Civil Procedure Act. Counsel also cited the case of Magic Chemicals Inc. v Pradip Enterprises (EA) Limited [2016] eKLR in urging the Court to find that a proper basis has been laid herein for the award of interest, Late Payment Charges and costs of the Counterclaim to the plaintiff.

[18] The plaintiff in the Counterclaim adduced uncontroverted evidence to prove that it entered into a Hire Purchase Agreement with the 1^st defendant. The said Agreement, dated 27^th June 2014, was produced herein as part of the plaintiff’s Bundle of Documents along with the Memorandum of Understanding and Letter of Offer. The facility was for the purchase of 24 motor vehicles; and was to be repaid in monthly instalments of Kshs. 1,882,629 over a period of 36 months.

[19] Among the conditions the 1^st defendant had to comply with was to avail the resolution of the Board of Directors, sanctioning the transaction. Accordingly, the plaintiff demonstrated that the 1^st defendant’s directors, who are the 2^nd, 3^rd and 4^th defendants herein, were authorized to furnish Guarantee and Undertaking as stipulated in the Letter of Offer dated 13^th June 2014. Copies of the relevant documents were produced by PW1 and are part of the plaintiff’s Bundle of Documents. The plaintiff has also produced a copy of the Statement of Account to show that, as at 28^th May 2020, the 1^st defendant owed the plaintiff Kshs. 54,768,116/=.

[20] Thus, the plaintiff availed credible evidence to prove that the 1^st defendant defaulted in servicing the facility by failing to pay the monthly instalments as and when due. The plaintiff further demonstrated that the 1^st defendant issued it with cheques that were returned unpaid to the tune of Kshs. 15,952,863/=. Copies of the said cheques were also exhibited herein as part of the Plaintiff’s Bundle of Documents. I am therefore satisfied that the 1^st defendant is truly indebted to the plaintiff in the sum of Kshs. 54,768,116/=.

[21] As guarantors, it was the obligation of the 2^nd, 3^rd and 4^th defendants to step in and pay the sums due from the 1^st defendant. They bound themselves to ensure the punctual and consistent payment by the 1^st defendant of all the hire purchase instalments and sums due under the Hire Purchase Agreement. They are accordingly just as liable to the plaintiff as the 1^st defendant. In Fidelity Commercial Bank Ltd vs. Kenya Grange Vehicle Industries Ltd (supra), the Court of Appeal made the point thus:

“A contract of guarantee binds the person giving a guarantee to honour its terms irrespective of any dispute that may be existing between the parties to the transaction for which the guarantee was given. A guarantee is therefore an accessory contract by which the guarantor undertakes to be answerable to the promisee for the debt or default of another person whose primary liability to the promise must exist.”

[22] The plaintiff prayed for Late Payment Charge on the sum of at 5% per month from 28^th May 2020 until payment in full. It also prayed for interest on the sum of Kshs. 54,768,116/= until payment in full. The general position on interest was well stated in Lata vs. Mbiyu [1965] EA 392 it was held that:

“The award of interest on a decree for payment of money for a period from the date of the suit to the date of the decree is a matter entirely within the court’s discretion, by section 26 of the Civil Procedure Act but such discretion must, of course, be judicially exercised…It is clearly right that in cases where the successful party was deprived of the use of goods or money by reason of a wrongful act on the part of the defendant, the party who has been deprived of the use of goods or money to which he is entitled should be compensated for such deprivation by the award of interest.”

[23] I therefore take the view that, indeed, the plaintiff is entitled to interest at court rate from the date of filing its Counterclaim until full payment. I however do not agree that the Late Payment Charge should be awarded concurrently with such interest. The Statement of Account shows that the default interest was charged to the account of the 1^st defendant and has therefore been provided for as the bigger part of the sum claimed of Kshs. 54,768,116/=. Indeed, the 1^st defendant’s cause of action was in connection with the Late Payment Charges. Consequently, I find no justification for awarding Late Payment Charge at 5% from 28^th May 2020 until payment in full.

[24] In the result, judgment is hereby entered for the plaintiff in the Counterclaim against the defendants jointly and severally for:

[a] Kshs. 54,768,116/=,

[b] Interest on [a] at court rate from the date of filing the Counterclaim until payment in full;

[d] Costs of the suit and the Counterclaim.

It is so ordered.

DATED, SIGNED AND DELIVERED AT MOMBASA THIS 14^TH DAY OF MARCH 2022.

OLGA SEWE

JUDGE