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Court of AppealAllowedCivil Appeal (Nairobi)

Langat v Co-operative Bank of Kenya Ltd (Civil Appeal 48 of 2015) [2017] KECA 152 (KLR)

Court of Appeal of Kenya
1 December 2017
PWP. N. WakiASAsike-MakhandiaWilliam OukoW. Ouko
7,207 words in judgment
View original judgmentRead on Kenya Law Watch case
AI-assisted case brief
·~29 min to read original · ~4 min brief

The bottom line

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Kenya's Court of Appeal threw out Co-operative Bank's lawsuit, ruling a bank cannot sue on an unsigned loan offer, sue too late, or charge interest of up to 71% without telling the borrower.

What this practically means

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Executive summary

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The Court of Appeal (Waki, Asike-Makhandia and Ouko, JJJA) allowed the borrower's appeal against a High Court judgment awarding the Co-operative Bank of Kenya Sh. 4,706,570.05 plus 21% interest on an alleged 1997 credit facility. The Court framed five issues: validity of summons, limitation, whether the letter of offer constituted a contract, good faith and conscionability, and the appropriate orders. First, it held the summons to enter appearance, issued some fourteen months after the plaint, were invalid; the appellant's appearance and defence, both expressly under protest, did not cure the defect. Second, it held the suit was statute-barred: the cause of action accrued by 25th August 1997, and the trial judge's extension under section 23(3) of the Limitation of Actions Act rested on a supposed part-payment of 28th April 1999 for which there was no evidential support, and on a High Court decision not followed on appeal. Third, the letter of offer of 25th August 1997 was not a binding contract because the bank's own witness conceded the prescribed acceptance formalities were never completed and no term loan was disbursed. Fourth, the charging of interest between 33% and 71% per annum, plus penalties, without communicated terms, statements or notice, was unconscionable and in bad faith. The Court set aside the High Court judgment and consequential orders, substituted dismissal of the bank's case, and awarded the appellant costs in both courts.

Questions the Court framed

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The issues the Court set itself to decide, in its own words.

  1. 1.Whether summons to enter appearance were valid?
  2. 2.Whether the suit filed by the bank was statute barred?
  3. 3.If not, whether the letter of offer dated 25th August 1997, upon which the suit was grounded constituted a contract between the parties.
  4. 4.Whether the contract, if any, and the interest charged by the bank was in good faith or unconscionable.
  5. 5.What orders should ensue.

Key legal issues

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01

Validity of summons to enter appearance

Holding

The summons, issued about 14 months after the plaint, were invalid; the appellant's appearance and defence were expressly under protest and did not validate them.

Reasoning

Order 5 Rule 2 of the Civil Procedure Rules limits a summons' validity to twelve months from issue. Unlike cases where a defendant participates unconditionally in trial and waives defects, here appearance and defence were expressly under protest, so the defect was not waived and the trial judge erred in treating participation as curing it.

p. 8
02

Limitation of actions

Holding

The suit, filed 15th September 2004 on a cause of action accruing by 25th August 1997, was statute barred; the trial court erred in finding a part-payment on 28th April 1999 with no evidential support.

Reasoning

Section 4 of the Limitation of Actions Act bars contract claims after six years. The trial court's extension under section 23(3) rested on an admission of part-payment nowhere in the record, and on a High Court authority not followed by this Court in the Euro Bank appeal. The bank's own witness confirmed the bank knew of its claim by 25th August 1997.

p. 10
03

Whether the letter of offer constituted a contract

Holding

The letter of offer of 25th August 1997 did not constitute a contract because its prescribed acceptance formalities were never completed and no term loan was disbursed.

Reasoning

The bank's own witness conceded that acceptance required five documents of which only two were provided, that drawdown never occurred and no securities were perfected. Following Muthami vs Bank of Baroda, offer, acceptance and consideration must all be proved; the RTS Flexible Systems objective approach did not yield a concluded contract on these facts.

p. 11
04

Good faith and unconscionability of interest charges

Holding

The imposition of interest rates between 33% and 71% p.a., plus penalty interest, without communicated terms, statements or notice, was an unconscionable transaction in bad faith.

Reasoning

The bank gave the borrower no terms for the overdraft, sent no statements for seven years and varied interest at will. Following Margaret Njeri Muiruri and Kenya Commercial Finance v Ngeny, a bank's discretion to vary interest is not unfettered; equity will set aside harsh, unconscionable and oppressive bargains.

p. 12

Legal principles established

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  • A borrower's entry of appearance under protest, followed by a defence filed under protest, does not cure the invalidity of expired summons; such appearance does not waive the defect nor revive the summons.
  • A court cannot extend the six-year limitation period for an action founded on contract under section 4 of the Limitation of Actions Act, and where a bank knew of its cause of action the claim must be filed within six years.
  • An offer letter that prescribes a mode of acceptance which the borrower never complies with, and under which no loan is disbursed or securities perfected, does not constitute a binding contract.
  • A bank's discretion to vary interest rates is not unfettered; charging exorbitant interest without notice to or information to the borrower, including failure to provide statements, is an unconscionable transaction and an act of bad faith which courts will interfere with.

Court orders

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  1. 1.The appeal is allowed
  2. 2.The judgment together with all consequential orders of the High Court is set aside and substituted with an order dismissing the respondent bank's case
  3. 3.The appellant shall have the costs of the appeal and the costs in the court below

The bench

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One judgment of the whole court — no separate or dissenting opinions.

PW
majority

Wrote the judgment

AS
majority

Wrote the judgment

William Ouko
W. OukoJA
Currently serving
majority

Wrote the judgment

On appeal from
High Court of Kenya
Jurisdiction invoked
First appellate jurisdiction under the Court of Appeal Rules (Rule 29), hearing an appeal from the High Court

Quotable passages

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Verbatim from the judgment, each located to the page it appears on in the official PDF — so these can be cited and checked directly.

it is our finding, upon consideration of the facts and applicable law, that the suit filed 15th September, 2004 was statutorily barred as at 24th August, 2003.
p. 10Limitation of actions - contract claims
we are persuaded that the letter of offer dated 25th August, 1997 did not constitute a contract between the parties.
Contract formation - offer and acceptance
The unwritten terms of lending in relation to the overdraft in this matter which appears to have emboldened the bank to run amok in its interest charges up to 71% p.a, bare the hallmarks of an unconscionable transaction, and we so hold.
p. 13Unconscionable bank interest charges
it only remains to make the orders which we now do, that the appeal is allowed and the judgment together with all consequential orders of the High Court is set aside and substituted with an order dismissing the respondent bank's case. The appellant shall have the costs of the appeal and the costs in the court below.
p. 13Final orders / disposition

Issues in the judgment

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minor

The judgment refers to 'Mutua, J.' as the trial judge in one passage but earlier narration and the name as printed appear as 'Mutava, J.', an internal inconsistency in spelling of the trial judge's name.

minor

The date of judgment of the High Court is given as 2012 but no exact decision date is stated in the judgment.

Key timeline

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Practical implications

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Frequently asked questions

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Later judgments citing this (25)

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Judgments in the corpus that rely on this one. Where the Court said how it treated the authority, that is shown.

Cite this brief

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Cite this brief

Caselaw, "Langat v Co-operative Bank of Kenya Ltd (Civil Appeal 48 of 2015) [2017] KECA 152 (KLR)", Case Analysis (2017). Civil Appeal (Nairobi). Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2017/152/eng@2017-12-01

Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.