Dhiman v Shah (Civil Appeal E380 of 2023) [2025] KECA 1264 (KLR)
The bottom line
#Kenya's Court of Appeal returned a Lavington property to its original owner but ordered him to repay Kshs 4 million, ruling the 36% compound interest clause unconscionable.
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 vesting order and other consequential orders remained in force after this court set aside the ex parte judgment of September 16, 1999
- 2.Whether the agreement between the parties was enforceable
- 3.Whether the respondent filed his suit prematurely
- 4.Whether the appellant's counterclaim was time-barred
- 5.Whether to address the alleged bias of the trial judge (not addressed given the de novo first-appeal review)
Key legal issues
#Effect of setting aside the ex parte judgment of September 16, 1999 on the vesting order and sale
The vesting order, certificate of sale and all consequential orders were set aside by operation of law; the property reverted to the appellant.
The July 31, 2015 judgment of this court set aside the entirety of the ex parte judgment, not merely part of it. All subsequent steps — the auction, the successful bid by the respondent, the vesting order, registration and eviction — derived their validity from that judgment. Setting aside the source set aside its consequences, returning the parties to the status quo ante; it would have been pointless to order a retrial had the property irreversibly remained with the respondent.
Whether the loan agreement failed or was breached
The contract had not totally failed; it was totally breached by the appellant, entitling the respondent to rescind and sue.
The appellant failed to pay the first two installments and interest; the respondent accommodated him by advancing Kshs 2 million, then lawfully rescinded on total breach by declining to advance the remaining Kshs 6 million. In contract law, the party first materially breaching becomes liable; the respondent's refusal to perform further was rescission for total breach, not reciprocal breach 'compromising' the agreement.
Whether the agreement violated section 3(1) of the Banking Act and was illegal
No violation; the Act applies to regulated banking institutions, not private friendly loans between individuals.
There was no evidence the respondent was engaged in the business of lending money habitually or as a banking institution. The loan was between individuals known to each other. No Kenyan law proscribes individuals lending each other money for interest; the Banking Act prohibition only reaches habitual lending as a banking institution by stealth.
Unconscionability of the 36% compounded interest
The contract is void for unconscionability: Kshs 4 million outstanding would balloon to over Kshs 69 billion under the terms.
The court recognised the Kenyan doctrine of unconscionability with procedural and substantive limbs, drawing on National Bank of Kenya v Pipeplastic Samkolit, Ajay Indravadan Shah v Guilders, K.C. Finance v Ngeny, Margaret Njeri Muiruri, Amadio and Strydom. Quarterly compounding of 36% over nearly three decades on a Kshs 4 million balance would exceed Kshs 69 billion — a disproportionate escalation that is oppressive and unconscionable, offending equity and good conscience.
Whether the counterclaim was time-barred
The counterclaim was a proprietary claim for recovery of land, not a contractual claim, and was therefore not time-barred; the issue became moot given the overall resolution.
The trial judge erred in treating the counterclaim as a contract claim subject to the six-year limitation period; it was grounded in ownership rights and wrongful transfer of property. However, because the vesting order was set aside and the property reverts to the appellant, the limitation question no longer required determination.
Legal principles established
#- When an appellate court sets aside an entire judgment, all consequential orders flowing from it are set aside ipso facto and the parties are returned to the status quo ante.
- Courts will enforce an agreed rate of interest unless it is shown to be illegal, unconscionable or fraudulent; unconscionable bargains may be struck down.
- Unconscionability requires both procedural and substantive elements; a contract whose terms produce an oppressive, extortionate result will be void for unconscionability even where voluntarily entered.
- Section 3(1) of the Banking Act does not invalidate private, non-habitual loans between individuals; the prohibition applies only where an individual is acting as a banking institution by stealth.
- A party that receives money under a transaction later set aside must disgorge the unpaid balance on the principle of unjust enrichment.
Court orders
#- 1.All the orders granted by the High Court in its judgment dated September 19, 2019 are set aside
- 2.The orders granted in the ex-parte judgment dated September 16, 1999, and all consequential orders arising therefrom, were null and void by virtue of being set aside by this court's judgment dated July 31, 2015
- 3.Revocation of the respondent's title to LR No 209/8192/8 and rectification of the land register in favour of the appellant
- 4.The appellant shall pay the respondent Kshs 4,000,000 with interest at court rates calculated from September 19, 2019
- 5.Failure to pay the amount owed shall result in the suit property being subjected to sale by public auction as it was secured for purposes of enabling the respondent to recover the loan amounts advanced
- 6.No order as to costs
The bench
#One judgment of the whole court — no separate or dissenting opinions.
- On appeal from
- High Court of Kenya, Commercial and Tax Division
- Civil Case No 205 of 1999
- Jurisdiction invoked
- First appeal under the Court of Appeal's appellate jurisdiction (section 3 of the Appellate Jurisdiction Act invoked in argument); the appeal arose from the retrial ordered in Kanwal Sarjit Singh Dhiman v Keshavji Jivraj Shah, Civil Appeal No 33 of 2007
Relief refused
#Appellant's attempt to retain the unpaid loan balance of Kshs 4,000,000 while recovering the suit property
Retention would amount to unjust enrichment; the appellant was ordered to refund the unpaid principal with interest
Costs of the appeal
Each party succeeded in part
Costs
Since each party has succeeded in part, there will be no order as to 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.
The result is that the sale at public auction as well as the vesting order – both of which were based on the ex parte judgment and derived their validity from it were, by operation of law, set aside by this court's judgment dated July 31, 2015.
We, therefore, find the contract between the parties void for unconscionability.
The prohibition only kicks in where there is evidence that the individual so lending, in fact, engages in habitual business and is otherwise acting as a banking institution by stealth or in the shadows.
it was the appellant who was in total breach of the contract entitling the respondent to rescind it and sue.
All the orders granted by the High Court in its judgment dated September 19, 2019 are hereby set aside.
There shall be an order of revocation of the respondent's title to the parcel of land known as LR No 209/8192/8 and rectification of the land register in favour of the appellant.
The appellant shall pay to the respondent Kshs 4,000,000 with interest at court rates calculated from September 19, 2019.
Since each party has succeeded in part, there will be no order as to costs.
Issues in the judgment
#The judgment inconsistently dates the interlocutory judgment being attacked, referring to a 'formal proof' judgment of September 16, 1999, but elsewhere describing it as 'the ex parte judgment of June 16, 1999' and an appeal filed against 'the Ruling of February 13, 2004 which ordered sale of the suit property' while elsewhere vesting is said to have occurred on September 27, 2006 / February 27, 2004.
Inconsistent vesting dates within the judgment itself.
The judgment references sections 26 and 80 of the Land Registration Act in a passage that appears truncated and does not complete the sentence.
Key timeline
#Practical implications
#Frequently asked questions
#Later judgments citing this (1)
#Judgments in the corpus that rely on this one. Where the Court said how it treated the authority, that is shown.
- Kenya Power & Lighting Company Ltd v Murungi (Environment and Land Appeal E005 of 2024) [2026] KEELC 2919 (KLR)[2026] KEELC 2919 (KLR)13 May 2026applied
Cite this brief
#Cite this brief
Caselaw, "Dhiman v Shah (Civil Appeal E380 of 2023) [2025] KECA 1264 (KLR)", Case Analysis (2025). Civil Appeal (arising from High Court Commercial and Tax Division Civil Case No 205 of 1999; earlier appeal Civil Appeal No 33 of 2007). Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2025/1264/eng@2025-07-11
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.