Magara v Parliamentary Sacco Society Limited (Civil Appeal 103 of 2018)  KEHC 472 (KLR) (Civ) (24 January 2023) (Judgment)
Neutral citation:  KEHC 472 (KLR)
Republic of Kenya
Civil Appeal 103 of 2018
CW Meoli, J
January 24, 2023
Parliamentary Sacco Society Limited
(Being an appeal from the whole Judgement and Decree of the Co-operative Tribunal at Nairobi by - Hon. C. Kithinji - Deputy Chair PPDT, Hon. H. Shidiye and Hon. F.F. Odhiambo - delivered on 26th January 2018 in CTC No. 391 of 2014)
1.This appeal emanates from the judgment delivered by the Co-operative Tribunal on 26.01.2018 in CTC No. 391 of 2014. The proceedings before the tribunal were commenced by way of a statement of claim filed on 10.09.2014 by the Parliamentary Sacco Society Limited the claimant before the tribunal (hereafter the Respondent) against Hon. James Omingo Magara, the respondent before the tribunal (hereafter the Appellant). The claim was for a liquidated sum of Kshs. 3,184,114.77/- plus interest from 01.04.2014 until payment in full with costs.
2.It was averred that during his membership with the Respondent, the Appellant took out a loan under the agreed by-laws of the Society. That the Appellant lost his parliamentary seat through a by-election in 2010 before completing repayment of the loan. It was further averred that after the part settlement of the loan, the balance outstanding as at 25.03.2014, including accrued interest stood at Kshs. 3,184,114.77/- which the Respondent claimed.
3.The Appellant filed a statement of defence on 25.01.2017 admitting having taken out a loan facility but specifically denied any loan balance. The matter proceeded to full hearing during which the parties adduced evidence in support of their respective pleadings. In its judgment the tribunal found in favour of the Respondent. Judgment was thus entered in favour of the Respondent in the sum of Kshs. 3,184,114.77/-. Aggrieved with the outcome, the Appellant preferred this appeal which is based on the following grounds: -
4.The appeal was canvassed by way of written submissions. Counsel for the Appellant submitted that the Respondent failed to prove its claim against the Appellant. While citing the provisions of Section 107 & 108 of the Evidence Act and Section 28 of the Sacco Societies (Deposit–taking Sacco Business) Regulations 2010, counsel argued that the Respondent had not proved the monies claimed and the tribunal failed to take into consideration the fact that the Appellant was entitled to receive statements from the Respondent. That the Respondent did not provide any documentation detailing the principal amount taken, loan account statement, loan servicing records, the interest accruing on the amounts advanced and the period within which the loan was to be paid. Counsel called to aid the decisions in Evans Otieno Nyakwana v Cleophas Bwana Ongaro  eKLR, M’bita Ntiro v Mbae Mwirichia & Another  eKLR and Peter v Sundays Post Ltd  EA 424 as cited in James Gachoki v Baragwi Farmers’ Co-operative Society Limited  eKLR to submit that the Respondent did not discharge its evidential burden.
5.Addressing the court on the question of the principal amount and interest accrued, counsel contended that the former and latter are two different components of a loan and should be proved separately. It was argued that the tribunal erred when it faulted the Appellant for not issuing a notice to produce documents on the Respondent instead of showing what formula it used in giving judgment in the Respondent’s favour that was inclusive of interest. That the tribunal ought to have distinguished the principal amount and the interest accrued. While placing reliance on the on the definitions of ‘Principal Balance’, ‘Simple Interest’ & ‘Compound Interest’ as cited in Halsbury’s Laws Dictionary and the decisions in Premier Bag & Cordage Ltd v National Irrigation Board  eKLR and Ongata Works Limited v Attorney General  eKLR it was asserted that compounding interest is unconscionable and where there is no documentation to prove the contractual relationship between the parties, the least amount of interest should be applied.
6.Counsel went on to submit that the interest is meant to compensate a party for having been kept out of its funds or property for some time and is not intended to enrich such a party or punish another. It was asserted that the initial amount outstanding was Kshs 2,812,290/- and after part settlement to the tune of Kshs. 1,118,492/- the Respondent failed to prove how they arrived at the resultant balance of Kshs. 3,184,114/-. That the Respondent failed to demonstrate how much was outstanding on the principal amount, interest thereto, interest rate applicable and whether the interest was simple or compounded. In conclusion the court was urged to allow the appeal and be set aside the judgment of the tribunal.
7.The Respondent naturally defended the tribunal’s findings. Counsel anchored his submissions on the decision in Nicholas Mahihu Murithi v Taifa Sacco Limited  eKLR concerning the principles guiding an appellate court on a first appeal. Counsel asserted that the tribunal’s decision was well reasoned , arrived at after analysing the documentary evidence and oral testimonies presented during the trial. Addressing the first ground of appeal it was submitted that from the evidence on record the Appellant duly acknowledged and admitted to being in arrears. With respect to the second ground of appeal it was asserted that the Respondent failed to prove the repayment of the outstanding debt and that the sale agreements and title deeds which he tendered did not constitute proof that the admitted loan was ever repaid. Counsel reiterated that the Respondent proved its case on a balance of probabilities and the court ought to dismiss the appeal as it was without merit.
8.The court has considered the record of appeal, the pleadings and original record of the proceedings as well as the submissions by the respective parties. This is a first appeal. The Court of Appeal for East Africa set out the duty of the first appellate court in Selle –Vs- Associated Motor Boat Co.  EA 123 in the following terms: -
9.It is settled that an appellate court will not ordinarily interfere with a finding of fact made by a trial court unless such finding was based on no evidence, or it is demonstrated that the court below acted on wrong principles in arriving at the finding it did. See Ephantus Mwangi & Another vs Duncan Mwangi Wambugu [1982 – 1988] 1 KAR 278. Thus upon review of the memorandum of appeal and submissions by the respective parties, it is the court’s view the appeal turns on the key issue whether the tribunal’s finding was well founded and justified.
10.Pertinent to the determination of issues before this court are the pleadings, which form the basis of the parties’ respective cases before the tribunal. Hence a review thereof is apposite before dealing with evidentiary matters. In Wareham t/a A.F. Wareham & 2 Others v Kenya Post Office Savings Bank  2 KLR 91, the Court of Appeal stated in this regard that: -
11.The Respondent by its statement of claim averred at paragraphs 2 to 12 that:
12.The Appellant filed a statement of defence admitting having taken out a loan but specifically denied having left a loan balance by stating at paragraphs 3 and 4 that:
13.The Appellant has asserted that the tribunal’s finding went against the weight of evidence, especially regarding proof by the Respondent of monies owed, i.e. the principal amount and the interest accrued thereon. The tribunal after restating and analysing the evidence held as follows in its judgment;-
14.The applicable law as to the burden of proof is found in Section 107, 108 and 109 of the Evidence Act. The Court of Appeal in Mumbi M'Nabea v David M.Wachira  eKLR while discussing the standard of proof in civil liability claims in our jurisdiction had this to say;
15.Further, the Court of Appeal in Palace Investment Ltd –vs- Geoffrey Kariuki Mwenda & Another  eKLR, the Judges of Appeal held that;
16.The duty of proving the averments contained in the statement of claim lay squarely on the Respondent whereas the averments contained in the Appellant’s statement of defence lay on him. In Karugi & Another v Kabiya & 3 Others (1987) KLR 347 the Court of Appeal stated that;-
17.James Njuguna Gachanja testified on behalf of the Respondent as CW1 and adopting his witness statement testified that, the Appellant was a member of the Respondent , and having defaulted on the repayment of his loan had acknowledged the outstanding debt through a letter dated 07.07.2010 - CExh.1. That the Respondent thereafter instructed its counsel to recover the same through the letter dated 08.10.2013 - CExh.2. He further testified that on 10.10.2013 the Respondent received a cheque for Kshs. 1,118,482/- CExh.3 as part payment of the outstanding loan balance. Thereafter the Respondent instructed its counsel through a letter dated 24.10.2013 - CExh.4 who by a demand letter to the Appellant dated 25.3.2014 - CExh.5 demanded to have the outstanding balance settled.
18.In cross examination it was his evidence that the Appellant received top up loans in the year 2008 and 2009 of Kshs. 3 million and 3.6 million respectively. That the Appellant had a loan balance of Kshs. 4.2 million and after setting off a part of it using his shares, the balance was Kshs. 2.8 million. He however he did not have any records of the foregoing in court, documents in respect of the Appellant’s loan statement or loan application form or the specific loan amount taken by the Appellant.
19.The Appellant testified as RW1 and similarly adopted his witness statement. He denied the contents of the letter dated 24.10.2013 - CExh.4 culminated from negotiations and asserted that the Respondent having made a demand, he put in place a repayment plan. That as at receiving the demand letter dated 25.3.2014 - CExh.5 he had cleared his debt with the Respondent but he did not receive a statement and was surprised that the claim before the tribunal was filed without reference to his guarantors.
20.He testified that in December 2010 he sold two of his properties to liquidate the debt with Respondent after he had redeemed his shares in Bunge Sacco to pay the debt. He tendered a sale agreement dated 23.11.2014 – R.Exh.1, in respect of land parcel LR. Ngong/Ngong/50691 (RExh.2), sale agreement dated 11.10.2012 – R.Exh.3 concerning land parcel LR. Ngong/Ngong/50690 (R. Exh.4). He asserted that he could not tell how the sums claimed by the Respondent were arrived at noting that his shares with the Respondent ought to have accrued dividends. He stated that despite persistent requests for statements he never received any from the Respondent. During cross-examination he asserted that he submitted to one Mr. Gachanja the documents evidencing payment of Kshs. 900,000/- as 1st installment and 2nd instalment in settlement of the debt. That subsequently he misplaced the documents evidencing the foregoing.
21.Undeniably the dispute herein revolves around a loan facility contract or agreement entered into by the respective parties. Curiously, neither party produced any formal documentation evidencing the particulars or terms of the said contract or agreement. CW1 admitted in his testimony before the tribunal that no loan application form was tendered and that the documents on record did not show the principal amount advanced to the Appellant.
22.Emphasizing the provisions of Section 97(1) and 98 of the Evidence Act, the Court of Appeal in University of Nairobi v Devcon Group Limited  eKLR highlighted the importance of production of the contract document in instances where a dispute is founded on contract. Indeed, it is a general rule of evidence that the terms of a contract that has been reduced into writing cannot be proved through parole evidence. In this case however, despite the absence of the written contract, there was an express, unambiguous, and unconditional admission of indebtedness to the tune of Kshs. 2,812,290/- by the Appellant to the Respondent in C.Exh.1 (letter dated 07.07.2010). An excerpt of the same reads as follows; -
23.The Respondent by its statement of claim and testimony by CW1 led evidence to the effect that the Appellant was indebted to the Respondent in the sum of Kshs. 3,184,114.77/-. The Appellant on his part refuted the claim and claimed to have completely settled any outstanding debt with the Respondent. As of 07.07.2010 the Appellant acknowledged indebtness to the tune of Kshs. 2,812,290.70/-. Evidently this sum comprised the balance outstanding after he had partly settled the initial outstanding loan balance by his shares held by the Respondent as evidenced in CExh.2. (letter dated 8.10.2013). Further, in the letter dated 07.07.2010 - CExh.1 the Appellant had expressed his intention to settle the acknowledged outstanding loan balance of Kshs. 2,812,290.70/- using his Bunge Sacco shares which amounted to Kshs. 1,118,598/-.
24.The latter sum was eventually paid via a cheque dated 10.10.2013 and drawn by Bunge Sacco in favour of the Respondent - CExh.3 leaving a balance of Kshs. 1,693,692/-, which sum was duly acknowledged by the Respondent in its letter dated 25.03.14 - CExh.5 . The letter stated in part:-
25.Clearly, the figure of Kshs. 3,184,114.77/- demanded of the Appellant included the outstanding balance on the principal and cumulative interest to the tune of Kshs. 1,490.413.77/-. In his evidence before the tribunal, C1 did not demonstrate the specific loan amount advanced to the Appellant; the terms of the said loan agreement or contract; the interest to be charged and or how the interest was calculated on the loan balance. Nor produce the statement of accounts on the Appellant’s loan. He relied on correspondence and the cheque from Bunge Sacco that was credited to the Appellant’s outstanding loan balance.
26.The Appellant has questioned the total sum of Kshs. 3,184,114.77/- claimed by the Respondent and whether the said figure was arrived at in compliance with Regulation of the Sacco Societies (Deposit–taking Sacco Business) Regulations 2010. It appears from its judgment that the tribunal was generally convinced that the Respondent had discharged its burden of proof on the amount owing, noting the Appellant’s acknowledgement of indebtedness and his failure to demonstrate that he had settled the outstanding balance.
27.The burden of proof lay with the Respondent to justify the entire claim before the tribunal, and the Appellant’s complaint in that regard is not idle. The Respondent’s statement of claim avers that it is a registered Sacco Society Limited, under the Co-operative Societies Act. Thus, its conduct of business is regulated by the said Sacco Societies Act and by extension, given the admitted relationship between the respective parties herein, the Sacco Societies (Deposit–taking Sacco Business) Regulations 2010. Regulation 28 of the Sacco Societies (Deposit–taking Sacco Business) Regulations 2010 provides that;-
28.The Respondent’s evidence did not include material indicative of the loan type, the interest rate, the terms and conditions; and the statement of accounts regarding repayments by the Appellant as required under the provisions of Regulation 28 of the Sacco Societies (Deposit–taking Sacco Business) Regulations 2010. Where is the material to justify the demand in the Respondent’s letter dated 25.03.14 - CExh.5 seeking interest in the sum of Kshs. 1,490.413.77/-? The tribunal did not address itself to the absence of evidence on this score.
29.It is settled that where the rate of interest is in question, it is a matter of fact and evidence must be led in proof of the rate of interest agreed upon by the parties. In this case, the loan agreement was not produced at the trial before the tribunal and the Respondent failed to tender other evidence in proof of the interest rate applicable, or to justify the interest component of its claim.
30.The Court of Appeal in CFC Stanbic Limited v John Maina Githaiga & Another  eKLR stated as follows; -
31.It is the court’s determination therefore that the tribunal ought to have addressed its mind to the interest component and made a determination thereon. However, regarding the principal sum, the tribunal correctly observed that the Appellant had not discharged the burden of proving that he had fully paid. The title copies and sale agreements produced by the Appellant were a poor substitute for real evidence of payment to the Respondent. The claim that he had lost his payment records when he moved houses did not preclude him from obtaining and producing other admissible secondary evidence.
32.The Supreme Court in Gatirau Peter Munya v Dickson Mwenda Kithinji & 3 Others (2014) eKLR in considering the legal vis-à-vis the evidential burden held inter alia;
33.In view of all the above, the court is of the considered view that although the Respondent’s evidence partially established its claim, to the tune of Kshs. 1,693,701.00 regarding the outstanding principal sum, it did not prove the additional sum of Kshs. 1,490,413.77/- claimed as interest. On the other hand, the Appellant failed to prove that he had paid the sum of Kshs. 1,693,701.00 to the Respondent. The Respondent was therefore entitled to the latter sum together with interest calculated at court rates, and reckoned from 25.03.2014, being the date of the Respondent’s demand letter. Consequently, the appeal has partially succeeded and the court will therefore interfere by varying the judgment of the tribunal accordingly. Each party will bear its own costs in the appeal and before the tribunal. It is so ordered.
DELIVERED AND SIGNED ELECTRONICALLY AT NAIROBI ON THIS 24TH DAY OF JANUARY 2023.C.MEOLIJUDGEIn the presence of:For the Appellant: N/AFor the Respondent: Mr.MainaC/A: Carol