1.    The Plaintiff in this suit is Co-operative Bank of Kenya Limited while the Defendant is Pius Kimaiyo Langat. By way of a Plaint dated 9^th September 2004 and filed on 15^th September 2004, the Plaintiff commenced the suit through which it seeks judgment against the Defendant for the sum of Kshs. 4,706,570.05 together with interest thereon at the rate of 21% per annum from 25^th March 2004 until payment in full. The Plaintiff also claims costs of the suit.

2.    The Plaintiff’s case is that on or around 25^th August 2007, it extended a credit facility to the Defendant of a sum of Kshs. 500,000/- comprising of an overdraft of Kshs. 100,000/- and a term loan of Kshs. 400,000/-. The facility was sought to enable the Defendant purchase farm inputs. The Plaintiff contends that the Defendant enjoyed the facility but defaulted in repayment of both the principal and interest thereon with the consequences that as at 25th March 2004, the aggregate debit balance due was Kshs. 4,706,570.05 which sum continued to attract interest at 21% per annum until payment in full. It is the repayment of this sum and interest that the Plaintiff seeks to enforce through the suit in this matter.

3.    In reply to the Plaintiff’s claim, the Defendant filed a memorandum of appearance on 9^th May 2006 in which is stated to have been filed under protest. He then filed a Defence dated 18^th May 2006 on 19^th May 2006, again under protest. Essentially, the protest tag placed on both the memorandum of appearance and the Defence was explained in the Defence to be premised on a legal challenge as to the validity of the summons issued and service thereof, as well as the contention that the suit was statutorily time-barred. The Defendant in respect of the latter contention argued that the cause of action in the matter was founded on a contract dated 25^th August 1997 and which had expired sometime in the year 2003. However, the Defendant, in the alternative, denied the purported terms of the facility as well as the interest chargeable thereon. He further denied having enjoyed the benefit of the facility and claimed to be a stranger to the particulars of the claim. He contended further the interest charged on the facility was illegal and excessive on account of violation of Section 44 of the Banking Act. He therefore urged this court to strike out and/or dismiss the Plaintiff’s suit.

4.    By a Chamber Summons application filed on 2^nd August 2006, the Plaintiff sought orders of the court permitting it to amend its Plaint as per a proposed amended Plaint dated 9^th September 2004. The proposed amendments sought to introduce an averment that the loan and overdraft facility was to be secured by properties L.R. Nos. Irong/Iten 1540 & 1553; Irong/Mutei 321; Irong/Mutei 352 and Irong/Mutei 347. The proposed amended Plaint also sought to plead for an order compelling the Defendant to execute the charge documents prepared over the properties and to provide a land control board consent and in default for the Registrar to execute the instruments. In a ruling delivered on 26^th October 2006, the court allowed the Plaint to be amended as per the draft annexed to the application. Subsequent to the amendment, the Defendant filed an amended Defence on 14^th November 2006 whose gist was to deny that the Plaintiff was in law entitled to specific performance in connection with execution of the charge documents and further reiterated its contention that the Plaintiff’s claim was in any event time-barred.  

5.    Upon parties filing their respective pre-trial documents, the matter was set down for hearing.

6.    Hearing commenced on 29^th February 2012 and was finalized on 26^th March 2012. The Plaintiff called one witness while the Defendant chose rely on cross examination of the Plaintiff’s witness and did not avail any witness.

7.    At the hearing, the Plaintiff was represented by Mrs. Macharia, Advocate, while the Defendant was represented by Mr. Kanjama, Advocate.

8.    In his evidence in chief, Plaintiff’s witness Mr. John Martin Chege testified as follows: he was the officer in charge of the recoveries in respect of the account of the Defendant, Mr. Pius Kimaiyo Lang’at, who was a customer in the Plaintiff’s University Way Branch. Mr. Lang’at had applied for a term loan for Kshs.670,000/= on 21/7/1997. The loan was repayable in 36 months. The purpose of the loan was for farming activity. Mr. Lang’at then applied on 6^th August 1997 for enhancement of the loan from Kshs.670,000/= to 750,000/=. The loan was appraised and approved as per letter of offer dated 25^th August 1997. The letter of offer allowed him Kshs.100,000/= as overdraft and term loan of Kshs.400,000/=. Interest was to be charged at 28% per annum. Mr. Lang’at accepted the offer. As at 20/8/1997, the overdraft level was Kshs.318,756.70. After the advance, the bank continued to honour his cheques to the level of Kshs.570,488/- when the limit of the facility was exceeded. Thereafter, the facility started to attract penal rate of interest. Due to persistence of the default, a demand letter was issued to Mr. Langat dated 6^th April, 2004 through which the bank was claiming a sum of Kshs.4,706,570.05. Before this demand letter, the bank had previously demanded the debt on 1^st December, 1997, 14^th May 1998, 13^th July 1998 and 5^th February 1999 but the Defendant never responded to the demand letters. The letter of 5^th Februry 1999 had also asked him to submit the consent to charge from the Land Control Board to enable the bank perfect the securities but the defendant did not comply. The defendant did not also sign the charge instruments proposed to be security for the debt. As at 25^th March 2004 the sum outstanding was Kshs.4,706,570.05. As at 15^th September 2009, the account was at Kshs.6,218,619.95. This was the last entry in the account.

9.    On cross-examination by counsel for the Defendant Mr. Kanjama, Mr. Chege told the court that his academic background was a Bachelor of Arts degree in Economics. He had also undergone in-house training in Recoveries although he was not a Certified Public Accountant. He admitted that he had never dealt with the Defendant at a personal level and that his evidence was based on the bank records he found upon employment with the bank. He confirmed that the Defendant had applied for a term loan of Kshs.670,000/=, which was enhanced to Kshs.750,000/=. He however never got the loan. The appraisal form for the Defendant was done by one T. N. Kimeu and signed by Tabitha N. Njubi, Joel Oisete and C. Wamalwa. The form was an internal appraisal document that was used to approve the loan. The form gave a general parameter to determine how much the Applicant could be eligible for borrowing and how much he could afford to pay. It also gave an insight on the activity the customer was engaged in.  The Manager’s remarks on the form showed that the debtor was a man of integrity and chairman of Posta Sacco. Beyond what was stated in the form, Mr. Chege could not tell of any other oral negotiations Mr. Langat may have had with the Manager. The proposed repayment for the loan was Kshs.20,834/= per month for 36 months. This would have settled the debt. He admitted that in the letter of 25^th August 1997, the bank purported to advance an overdraft facility and not a term loan. He further admitted that acceptance of the offer was subject to completion of formalities, some of which were not fulfilled. For instance, the securities listed in the letter of offer were never availed. He admitted further that drawdown ought not to have been availed without completion of the security and guarantee formalities. He however insisted that under the clause titled “Increased Cost” the bank reserved the right to charge interest depending on the market. He was not aware that the bank was required to notify Central Bank of Kenya of any changes in charges as required in Section 44 of the Banking Act. He was also not aware that the loan was to be paid from the Defendant’s salary. Mr. Langat had also been allowed to exceed the overdraft limit due to his reputation as a man of integrity. The bank however never honoured any of his cheques once the overdraft exceeded kshs.500,000/=. Mr. Chege admitted that he had no evidence that the Land Control Board ever gave consent nor that Mr. Langat had refused to sign the charge documents. He was however not aware that suit should have been filed in August 2003, which was six years after the date of the latter of offer.

10.     In re-examination, Mr. Chege clarified that the Defendant was advanced a sum of Kshs.100,000/=  overdraft and Kshs.400,000/= as a term loan according to the letter of offer of 25^th August 1997. The term loan was however not advanced as the overdraft he was enjoying already exceeded the limit of the facilities extended to him. The securities in the letter of offer were also not perfected because Mr. Langat was regarded by the bank as a man of integrity and one who enjoyed a good relationship with the bank. In a letter dated 21^st July 1997, had indicated that he was in family business and that the loan would be repaid from his farming proceeds. Mr. Langat was therefore liable for payment of the sum claimed in the Plaint, interest and costs.

11.   Both counsel put in written submissions at the conclusion of the suit and relied on these entirely.

12.   I have carefully considered the pleadings, the oral and documentary evidence placed before me and the respective submissions by counsel for the parties.

13.   I see the issues arising for my determination as comprising of the following:

1)   Whether the Defendant was advanced the facilities forming the basis of the Plaintiff’s claim;

2)   Whether the Defendant repaid the loan and overdraft facilities extended to him;

3)   Whether the interest levied on the account was illegal and contrary to Section 44 of the Banking Act;

4)   Whether the Plaintiff’s claim is statutorily time-barred;

5)   Whether summons to enter appearance were valid and validly served.

14.   On the outset, it is pertinent to observe that the Defendant chose not to tender any evidence in court to controvert the evidence adduced by the Plaintiff. He only chose to test the veracity of such evidence by way of cross-examination of the Plaintiff’s witness. Accordingly, to the extent that cross examination failed to shake the Plaintiff’s evidence, the factual position of the Defendant’s case floundered.

15.   Turning to the issues set out above, it is common ground in respect of issues No. 1 and No. 2 above that the Defendant was advanced an overdraft and term loan facility aggregating the sum of Kshs. 500,000/- as evidenced in the letter of offer dated 25^th August 1997 and as testified by PW1. This letter in my view constituted the contract of advance of banking facilities between the parties and superseded any informal accommodation or arrangements that the debtor had hitherto enjoyed from the Plaintiff by virtue of his being regarded as a man of integrity and one enjoying cordial relationship with the then management of the Plaintiff’s University Way Branch. Such informal accommodation could not vitiate the debtor’s repayment obligations as he has not at all controverted the fact of his having enjoyed banking facilities.

16.   Likewisely, it is also evident that the repayments that the Defendant made, mainly through salary remittances, did not in any significant way match the contractual repayment obligations of the facility. Consequently, the debt grew unabated to the sum of Kshs.4,706,570.05 as at 25^th March 2004 and  the account was at Kshs.6,218,619.95 as at 15^th September 2009, according to the evidence of PW1. 

17.   The first two issues are therefore answered in the affirmative, there being no controverting evidence from the Defendant’s side.

18.    With regard to issue No. 3 that contends that the interest by the Plaintiff levied was contrary to Section 44 of the Banking Act, that Section provides as follows:

 “No institution shall increase its rate of banking or other charges except with the prior approval of the Minister.”

19.   In my analysis, a distinction needs to be drawn on what charges Section 44 of the Banking Act governs. The marginal note on the section clearly states that it relates to restriction on increase in bank charges. Bank charges in my view are distinct from interest charges as these relate to the price or cost of banking services or products, notably commissions. This means that interest rate adjustments are not regulated under Section 44 and a bank wishing to adjust interest rate applicable to loan facility is not obligated to seek Ministerial approval. Interest rate charges must therefore be considered separately and not as part and parcel of Section 44. I do not therefore think that the Defendant can avail itself of any defence premised under Section 44 of the Banking Act and such defence must fail.

20.   At best, the Defendant would only sustain a claim against the Plaintiff based on the interest rates applied to his facility if such rates were not applied in accordance with the contractually agreed rates, unless such rates relate to the period when interest rates were controlled in Kenya.

21.   For purposes of bringing clarity to my above finding, my research on the trend of interest rates regulation in Kenya has taken me back to the period prior to the year 1996. During that epoch, interest rates were regulated under the then section 39 of the Banking Act. The section provided:

“The Bank may from time to time acting in consultation with the Minister determine and publish the maximum and minimum rates of interest which specified banks or specified institutions may pay on deposits or charge for loans or advances”.

22.   Through the Central Bank of Kenya (Amendment) Act of 1996 (No. 9 of 1996), Section 39 of the Banking Act aforesaid was repealed. Henceforth, interest rates that banks and financial institutions could charge were liberalized and left to be determined by market forces. Banks could therefore fluctuate rates of interest depended on the cost of money prevailing in the market at any given time. By increasing or decreasing interest rates, they could not be said to be contravening any law. Banks could only be faulted if such fluctuations contravened the contractual interest rates constituted in the agreements entered into with customers at the time of extending a facility.

23.   Consequently, looking at the Letter of Offer of facilities dated 25^th August 1997, it is clear that the contract between the Bank and the Defendant was entered into after the repeal of Section 39 aforesaid and therefore during the liberalized interest rate regime in the country. Whether or not the bank overcharged the Defendant in respect of interest therefore depends on what the parties had covenanted in the letter of offer.

24.   The terms as to interest covenanted by the parties in the said letter of offer of 25^th August 1997 were as follows:

 “The Borrower will pay interest on the facility monthly in arrears (as well as after or before any demand, judgment or liquidation of the borrower) at base rate plus 6% (currently 22% + 6% = 28%) interest, which interest will be calculated on the basis of actual days elapsed over a 365 day year and will be payable by debit to the Current Account in accordance with the usual practice of the Lender”.

“The lender reserves the right to change the rate of interest, and/or the basis on which interest is calculated without prior reference to the Borrower, and the Lander shall be under no obligation to communicate such change to the Borrower”.

25.   The above position is reflected in the letter of set off dated 26^th August 1997 which was duly executed by the Defendant.

26.   In my considered view, the provisions allowing the bank to unilaterally change the rate of interest without any recourse to the debtor substantively dethrone any defence that the interest charged was unlawful. As submitted by counsel for the Defendant, some of the rates applied on the facility were too high, to the point of being outrageously unreasonable. However, these remained contractual as the Defendant had willingly placed his hand on the paper which gave the bank a blanket authority to charge interest at its whims. The Defendant must therefore bite the bullet and accept the debt arising out of debits that comprise of such interest charges.

27.   The only reprieve that the Defendant would have as regards the interest claim is if the same were levied after the enactment of the in duplum rule enunciated under Section 44A of the Banking Act. This rule came into force through the Banking (Amendment) Act, Act No. 9 0f 2006 which became effective from 1^st May 2007. Under the rule, the law placed a ceiling on the amount of interest that a lender could charge a borrower on a given loan and which it restricted to an amount not exceeding the principal sum lent. Unfortunately, the law came into effect after the interest in this matter had already been accrued and applied to the debt. However, should the interest rate claimed in the Plaint compute to a sum exceeding the principal claim in the Plaint, any amount over and above the interest sum equal to the principal would not be payable.

28.   With regard to debits made in respect of commissions and penalties, I note that the default clause in the letter of offer contemplated “other amounts owing hereunder” therefore it would be difficulty to isolate these from the contractual obligations of the Defendant.

29.   On the issue of whether the debt sought to be recovered through the debits was statutorily time-barred at the time the suit was instituted, the Defendant’s contention is that under Section 4 of the Limitations of Actions Act, cap 22, Laws of Kenya, a cause of action founded on contract cannot be brought after a lapse of 6 years from the date on which the cause of action accrued. He contends that the cause of action in this matter was founded on a contract dated 25^th August 1997 (i.e. letter of offer of facilities). Pursuant to this contract, the Bank allowed the Defendant to clear cheques until the debit position hit the limit of Kshs. 500,000/- on 25^th September 1997. The Defendant further admits that it made a final part-payment of the debt on 28^th April 1999. This latter date is the date the Defendant wishes the court to consider for purposes of computing limitation period.

30.  I have perused the documentation in relation to this borrowing. The application for the term loan and an overdraft facility was made on 21^st July 1997. The letter of offer was issued on 25^th August 1997. The debit position of the account then grew from the date of drawdown to a sum of Kshs. 4,706,570.05 as at 25^th March 2004 according to the demand letter from the Plaintiff to the Defendant dated 6^th April 2004. As at 30^th June 2006, the interest arrears account for the defendant reflected a debit balance of Kshs. 2,807,622.60.

31.   Section 23(3) of the Limitation of Actions Act, cap 22 provides that where a right of action has accrued to recover a debt or other liquidated claim and the person liable or accountable therefor acknowledges the claim or makes any payment thereof, the right accrues on and not before the date of acknowledgement of the debt. The implication of this provision is that where the debtor acknowledges the debt or makes part-payment thereof, computation of limitation period commences from the date of the last acknowledgement or part-payment, as the case may be. In that regard, the Defendant in the present suit having admitted that he made a final part-payment of the debt on 28^th April 1999, the period of limitation under Section 4 of the Act would commence from the date of that last part-payment. The computation of time for purposes of Section 4 of the Act would mean that the debt became statutorily time-barred on 27^th March 2006. Consequently, as suit in this matter was filed on 15^th April 2004, the Plaintiff’s claim was well within the limitation period as contemplated by Section 23(3) of the Limitations of Actions Act, cap 22.

32.   In any event, there is judicial authority supportive of the view that in a claim for a bank debt that attracts interest on contractual terms, the time for initiating action does not lapse upon the lapse of the statutory period of limitation as every time interest is debited on the borrower’s account, a new cause of action arises. In the case of Deposit Protection Fund vs. Rosaline Njeri Macharia & Another HCCC No. 399 of 2005 (unreported), Hon. Justice Fred Ochieng observed as follows:

“It should be recalled that in normal circumstances, if a bank lends money to its customer, the bank’s right to recover the loan is not barred by limitation, some six years after the money was lent. Ordinarily, loans attract interest, for it is by charging such interest that lenders are able to remain in business. Now, whenever interest is debited to the customer’s account in accordance with the agreement between the lender and the said customer, a new cause of action accrues.”

33   I have no reason to take a divergent view as interest accrued is money that becomes a debt owing from the borrower, recoverable from the date of the debit. The effect of this position for purposes of the present suit is therefore to render the defence of statute limitation ineffective as the bank continued to levy interest up to the date of filing suit and beyond.

34.   To allay any doubts about my above analysis, I take refuge in the Court of Appeal decision in the case of Shire vs. Thabiti Finance [2000] LLR 1455 (CAK) (reported in 2002 EA) where the court held:

“[These words]”leave no doubt that the legislature intended that any acknowledgement or part-payment not only extends the limitation period but also revives an otherwise statute-barred action falling within that provision”.

35.   The Defence advanced by the defendant that the Plaintiff’s claim was statute-barred therefore collapses.

36.   The last issue is the Defendant’s contention that summons to enter appearance was irregularly extracted and served because the date of the summons was indicated as 16^th January 2005 but was amended to reflect 16^th December 2005 without the endorsement of the Deputy Registrar. The Defendant claims further that the summons referred to him as “Paul” instead of “Pius”. My humble view to these contentions is two-fold:

1)   The Black’s Law Dictionary defines “summons” as follows:

“To serve summons; to cite a Defendant to appear in court to answer a suit which has begun against him; to notify the Defendant that an action has been instituted against him, and that he is required to answer to it at a time and place named”.

In my view, the purpose of summons to enter appearance is to bring to the notice of the Defendant of the fact of institution of suit and to require him to respond to the Plaintiff’s claim. Where therefore the Defendant has already entered appearance, filed defence and defended the suit to its conclusion, it becomes foolhardy and indeed superfluous for the Defendant to still insist that issuance of summons and service thereof was irregular.

2)   The irregularities complained of in respect of the summons are technicalities that do not go to controvert that the Defendant was duly served and pursuant thereto he duly responded to the claim and has since fully participated in this litigation. Under Article 159(2)(d) of the Constitution of Kenya, the court is enjoined not to accord undue regard to technicalities where such would impede substantive justice. I therefore hold that these irregularities do not operate to defeat the Plaintiff’s suit on its substantive merits.

37.   In concluding, let me observe that this judgment takes cognizance of the issues the parties raised with regard to the orders made by the court towards compulsion of the Defendant to execute the charge documents and to provide Land Board consent. Evidently, those orders were not complied with and the charge documents were never registered and neither was the Land Board consent availed. Consequently, this court has approached the suit in this matter as one entirely pursuing an unsecured debt. I need not therefore delve further into determining issues related to the intended securities as such securities were never perfected and are for all intents and purposes non-existent.

38.   In my judgment therefore, I hold that the Plaintiff’s claim against the Defendant is undefended on its merits and has been shown not to be time-barred. The claim pertaining interest and other charges has also been vindicated.

39.   I am therefore inclined to enter judgment for the Plaintiff against the Defendant, as I hereby do, in the sum of Kshs. 4,706,570.05 together with interest thereon at the rate of 21% per annum from 25^th March 2004 until payment in full. I further award costs of this suit to the Plaintiff.

40.   Those, then, shall be the orders of this court.

DATED, SIGNED AND DELIVERED IN OPEN COURT AT NAIROBI THIS 4^TH DAY OF OCTOBER 2012