Daima Bank Ltd (In Liquidation) v Ndetei (Civil Appeal 171 of 2010) [2018] KECA 713 (KLR)
The bottom line
#Kenya's Court of Appeal ruled that borrowers who sign charge documents are bound by them, and whoever claims illegal interest must prove it.
What this practically means
#Executive summary
#Questions the Court framed
#The issues the Court set itself to decide, in its own words.
- 1.Whether the trial judge misapprehended the evidential burden of proof, which lay on the respondent as plaintiff
- 2.Whether the court can re-write the contract between the parties as embodied in the charge instruments
- 3.Whether the appellant was entitled to consolidate the respondent's accounts
- 4.Whether the trial judge failed to consider the counterclaim and the appellant's submissions
- 5.Whether the grant of the injunction and discharge of the charge was justified
- 6.When an appellate court may interfere with a trial judge's exercise of discretion
- 7.What interest rates were contractually applicable at the various periods the facilities were outstanding
Key legal issues
#Evidential burden of proof on the claim and on the alleged breach of section 44 of the Banking Act
The legal burden of proof remained on the respondent at all times as the party instituting proceedings; the mere invocation of section 44 of the Banking Act was not enough, and the respondent did not discharge the burden.
Applying section 107 of the Evidence Act, whoever asserts facts on which a legal right or liability depends must prove them. The respondent, aided by a Central Bank witness, did not show which rate had been approved and which was violated by an increase. The IRAC report's evidential value was questionable, and no prevailing minimum and maximum rates were identified to establish a breach of section 44.
Validity and enforceability of the charge instruments
The charge dated 30th May 1996 and the second charge dated 19th August 1999 were valid and their terms contractually enforceable; the suit property was governed by the Registration of Titles Act regime.
Under section 2 of the RTA and sections 58 and 100 of that Act read with section 69 of the Indian Transfer of Property Act, registration of a charge is conclusive. The respondent, a well-educated person, voluntarily signed the charge before an advocate, and his contention that it was not explained to him was contradictory and unpersuasive.
Whether the appellant was entitled to consolidate the respondent's accounts
Yes; both charge instruments reserved the right to combine or consolidate accounts, and the suit property secured all the facilities consolidated.
Clause (f) of the charge of 30th May 1996 and clause (g) of the second charge permitted consolidation and set-off. The right existed and was exercisable at any time while the charge was in force, as occurred in May 1998 when a transfer was made from account number 125859.
Whether the appellant violated section 44 of the Banking Act by varying interest rates without the Minister's approval
The appellant did not violate section 44 in light of section 52(1) of the Banking Act and section 39 of the Central Bank of Kenya Act.
Section 39 of the Central Bank of Kenya Act allowed banks to determine maximum and minimum interest rates, and the offer letters confirmed the applicable rates. Section 52 of the Banking Act validates contractual obligations notwithstanding contravention of the Acts, and the terms of the charge were the contractual obligations contemplated by that provision.
Applicable interest rates across the different periods of the facilities
Four distinct rate regimes applied: prevailing market rates for unsecured lending up to 19th June 1994; the rates in the offer letter of 19th June 1994 to 24th July 1995; the rates under the second offer letter of 24th July 1995 incorporated in the charge to 19th August 1999; and the rates under the second charge from 19th August 1999.
The court distinguished the facilities at two levels and held that drawdowns pending perfection of the further charge should not attract penalties since perfection was beyond the borrower's control. The parties must reconcile the accounts using these rates because the court took no evidence on the tabulation.
Whether the trial judge erred in failing to consider the counterclaim separately
Once the principled basis for the disputed calculations is established, it matters not that the counterclaim is considered separately, since the respondent's overpayment claim and the counterclaim are mutually exclusive.
The success of the respondent's overpayment claim excludes success of the counterclaim as a mathematical exactitude; the injunction and discharge-of-charge orders equally depend on the reconciliation and tabulation of the accounts.
Legal principles established
#- On a first appeal, the Court of Appeal re-appraises the material before the trial court and draws its own conclusions on the facts, but exercises this jurisdiction with caution.
- An appellate court will not interfere with a discretionary decision of a trial judge unless the judge misdirected himself in law, misapprehended the facts, took into account irrelevant considerations, failed to take into account relevant considerations, or his decision is plainly wrong.
- Where parties have agreed contractual obligations, section 52(1) of the Banking Act validates them notwithstanding any contravention of the Banking Act or the Central Bank of Kenya Act; a party alleging breach of section 44 of the Banking Act bears the burden of proving it.
- A borrower who voluntarily signs a charge before an advocate cannot contend that the charge document was not explained to him; the registration of a charge under the RTA is conclusive.
- A lender may consolidate a borrower's accounts where the charge instrument reserves a right to combine or consolidate accounts, notwithstanding that the accounts are operated in different names, provided the security covers all the facilities consolidated.
Court orders
#- 1.Declaration that the appellant did not violate section 44 of the Banking Act in light of section 52(1) of the Banking Act and section 39 of the Central Bank of Kenya Act (now repealed)
- 2.Declaration that the charge instruments dated 30th May 1996 and the second charge dated 19th August 1999 were valid and contractually enforceable
- 3.Declaration that the appellant was entitled to make the deductions made in the account on account of expenses incurred in connection with the facilities
- 4.Declaration that the appellant was entitled to consolidate the respondent's facilities and accounts secured by the charge instruments
- 5.Remittal of the case to the High Court at Milimani Commercial Court before any judge for reconciliation of accounts by the parties and final disposal based on the specified applicable interest rates for the four identified periods
The bench
#One judgment of the whole court — no separate or dissenting opinions.
- On appeal from
- High Court of Kenya at Nairobi, Milimani Commercial Courts
- HCCC No. 2198 of 2000
- Jurisdiction invoked
- First appeal to the Court of Appeal under the Court of Appeal Rules (Rule 29(1) and Rule 3 of the Court's Rules); no constitutional provision invoked.
Relief refused
#Endorsement of any specific figures of amounts owing as presented by either party
The court took no evidence and found the accounts required reconciliation by the parties
Reliance on the IRAC report as a basis for calculation
The report did not take into account the contract between the parties and its evidential value was questionable
Refund of legal fees paid to Kibuchi & Company Advocates
The issue was neither pleaded nor raised on appeal
Costs
No costs order recorded in the judgment; the judgment makes no mention of costs.
Quotable passages
#Verbatim from the judgment, each located to the page it appears on in the official PDF — so these can be cited and checked directly.
e) The case be and is hereby remitted back to the high court at Milimani Commercial Court before any judge for purposes of reconciliation of accounts by the parties and final disposal of the case
The appellant did not violate the provisions of section 44 of the Banking Act in light of the provisions of section 52(1) of the Banking Act and section 39 of the Central Bank of Kenya Act (now repealed)
The charge instruments dated 30th May 1996 and second charge dated 19th August 1999 were valid and the terms thereof contractually enforceable and applicable
Whilst an appeal court has jurisdiction to review the evidence to determine whether the conclusions of the trial Judge should stand, this jurisdiction is exercised with caution
In the absence of any other evidence apart from the IRAC report whose evidential value is questionable, the respondent did not discharge the burden of proof successfully to warrant the orders sought.
If courts readily diminished the banks’ rights under the charge, then the very concept of accepting a charge as security would be in serious jeopardy and access to financing would be limited
Issues in the judgment
#Paragraph numbering is duplicated: two consecutive passages are both numbered '13' in the judgment.
The offer letter date is stated inconsistently within the judgment as both 18th/19th July 1994 and 19th June 1994.
The judgment closes without any order as to costs and without a formal costs disposition.
Key timeline
#Practical implications
#Frequently asked questions
#Cite this brief
#Cite this brief
Caselaw, "Daima Bank Ltd (In Liquidation) v Ndetei (Civil Appeal 171 of 2010) [2018] KECA 713 (KLR)", Case Analysis (2018). Civil Appeal No. 171 of 2010. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2018/713/eng@2018-02-09
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.