African Banking Corporation Limited v City Gas Limited & 3 others (Civil Suit 434 of 2017) [2025] KEHC 10064 (KLR) (Commercial and Tax) (11 July 2025) (Judgment)

Key Facts

Transaction Type

Tax Type

Issues

• Whether the Plaintiff is entitled to the sum of Kshs.45,502,715.29, interest, and costs as prayed
• Whether the sale of the charged property, LR No. 209/16448, was proper
• Whether the Plaintiff correctly applied the in duplum rule in its claim
• Whether the claim under the Deeds of Guarantee executed by the 2nd, 3rd, and 4th Defendants is valid and enforceable

Holdings

• The Plaintiff's application of the in duplum rule was partially upheld. While the rule limits recoverable interest to an amount equal to the principal at default, the Court found the Plaintiff overstated the claim. The actual outstanding balance as of the suit filing was Kshs.36,181,942.79, not the claimed Kshs.45,502,715.29. The in duplum rule was deemed a shield for borrowers, not a tool for lenders to double amounts arbitrarily.
• Judgment was entered for the Plaintiff against the Defendants jointly and severally for Kshs.36,181,942.79, together with interest at contractual rates until full payment. The Plaintiff was also awarded the costs of the suit. The Court emphasized that the in duplum rule does not replace contractual terms but caps interest when it exceeds the principal.
• The Deeds of Guarantee executed by the 2nd, 3rd, and 4th Defendants on 27th July 2012 were found valid and enforceable despite late stamping in April 2017. The Court held that Section 20 of the Stamp Duty Act permits belated stamping for admissibility, and the guarantees constituted continuing security covering both the original loan and its 2013 restructuring. The Defendants' challenge to their validity was dismissed.
• The Court determined that the sale of the charged property (LR No. 209/16448) was proper, lawful, and validly executed. The property was sold by private treaty for Kshs.16,500,000 in 2016, with the consent and at the request of the 2nd Defendant. The valuation at the time of sale (Kshs.15,000,000) supported the transaction's fairness, and the Defendants failed to provide credible evidence of undervaluation.

Remedies

• Judgment is entered for the Plaintiff against the Defendants jointly and severally for Kshs.36,181,942.79/= together with interest at contractual rates until payment in full.
• The Plaintiff is awarded the costs of the suit, to be paid by the Defendants jointly and severally.

Contract Value

Tax Issue Category

Monetary Damages

Legal Principles

• The court interpreted the Deeds of Guarantee literally, emphasizing that clauses 2(a) and 2(d) explicitly stated the guarantees were 'continuing security' covering all obligations from time to time, including loan restructuring in 2013. The court rejected the defendants' argument that the guarantees were limited to the original Kshs.30,000,000, finding the language unambiguous and enforceable under contract principles.
• The court relied on Section 176 of the Evidence Act, which presumes entries in a banker's book are prima facie evidence of the transactions recorded. This presumption supported the plaintiff's claim of indebtedness (Kshs.36,181,942.79), as the defendants failed to identify specific errors in the unchallenged bank statements.
• The court upheld the admissibility and enforceability of the guarantees despite late stamping (executed in 2012 but stamped in 2017), citing Section 20 of the Stamp Duty Act. The court referenced Paul N. Njoroge v Abdul Sabuni Sabonyo [2015] KECA 928 (KLR), affirming that late-stamped documents remain admissible if the required duty and penalties are paid, as the plaintiff had done.
• The court applied the in duplum rule (Section 44A of the Banking Act) to cap recoverable interest at twice the principal amount outstanding at the time of default (Kshs.35,336,250.65), resulting in a maximum recoverable amount of Kshs.70,672,501.30. The court adjusted the plaintiff's claim from Kshs.45,502,715.29 to Kshs.36,181,942.79, finding the plaintiff's calculation overstated the recoverable amount by doubling the principal at default without demonstrating interest had exceeded it.

Precedent Name

• Robert Njoka Muthara & Another v Barclays Bank of Kenya Limited & Another [2017] eKLR
• Housing Finance Company of Kenya Limited v Palm Homes Limited & 2 Others [2002] 1 KLR 411
• Paul N. Njoroge v Abdul Sabuni Sabonyo [2015] eKLR
• Housing Finance Company of Kenya Limited v Scholastica Nyaguthii Muturi & Evanson Kamau Waitiki [2020] KECA 833 (KLR)

Key Disputed Contract Clauses

• The court examined the scope of liability under the guarantees, particularly Clause 1(b), which the Defendants argued limited recoverable amounts to the original principal (Kshs.30,000,000) plus fees. The Plaintiff claimed the guarantees covered the restructured amount. The court ruled the guarantees were enforceable for the adjusted principal (Kshs.36,181,942.79) as per the evidence, rejecting the Defendants' strict interpretation of the original loan limit.
• The court analyzed Clause 2(a) and 2(d) of the Deeds of Guarantee, which stipulate that the guarantees are 'continuing security' and remain enforceable despite account restructuring, termination notices, or administrative changes. The Plaintiff argued these clauses made the guarantees valid for the restructured loan, while the Defendants contended they were limited to the original Kshs.30,000,000. The court upheld the continuing security, finding the language unambiguous and enforceable.

Cited Statute

• Banking Act
• Stamp Duty Act
• Evidence Act

Judge Name

Passage Text

• Judgment is entered for the Plaintiff against the Defendants jointly and severally for Kshs.36,181,942.79/= together with interest at contractual rates until payment in full.
• The introduction of the in duplum rule, in my view was to act as a shield to the borrower in default and not a sword for the lender.
• Upon reviewing the Plaintiff's bank statements, the Court finds that the actual outstanding balance as of the date of filing the suit was Kshs.36,181,942.79. This figure was confirmed by PW1 during cross-examination, who admitted that there was no statement showing an outstanding balance of Kshs.45,000,000 as claimed in the Plaint. Accordingly, the Court finds that the 1st Defendant is indebted to the Plaintiff in the sum of Kshs.36,181,942.79—not the Kshs.45,502,715.29 claimed.

Damages / Relief Type

• Judgment for Kshs.36,181,942.79 plus interest at contractual rates until payment in full
• Plaintiff awarded costs of the suit