National Bank of Kenya Ltd v Pipeplastic Samkolit (K) Ltd & another [2001] eKLR

Key Facts

Transaction Type

Issues

• The court examined whether the National Bank of Kenya could lawfully charge interest rates exceeding the 20% minimum specified in the charge agreement. The plaintiffs argued that the bank's interest rates were excessively high and punitive, but the court held that the bank was entitled to charge interest at prevailing rates, as per standard banking practices and the terms of the contract. The judgment emphasized that the parties were bound by the agreed terms unless coercion, fraud, or undue influence were proven, which were not alleged in this case.
• The second issue addressed the procedural error of the lower court in taking and settling accounts. The court ruled that the learned judge erred by assuming jurisdiction to hear arguments on account settlement when the plaint did not include this relief. The judgment clarified that account settlement is not a judicial function but a procedural matter governed by specific rules (Order XIX and Order XX), and the judge's ad hoc approach was unprocedural and lacked jurisdiction.

Holdings

• The appeal is allowed with costs, and the ruling of the High Court ordering the waiver of interest and granting time to pay in instalments is set aside. The plaintiffs' application for an injunction and account settlement is dismissed with costs. The court emphasized that parties must comply with the terms of their contracts, and a judge cannot rewrite a contract unless coercion, fraud, or undue influence is proven.
• The learned judge in the High Court erred in assuming jurisdiction to take and settle accounts, as this is not a judicial function. The court reiterated that judges cannot act as accountants and must follow procedural rules for account settlements. The plaintiffs' claim for taking accounts had no basis in their original suit.
• The court affirmed the status quo preceding the filing of the suit in the High Court. This means the position before the plaintiffs initiated their legal action is restored, and the parties are free to pursue further proceedings as they deem fit.

Remedies

• The Court declared that the status quo preceding the filing of the suit in the superior court now prevails, effectively restoring the position before the plaintiffs' application was filed.
• The appeal is allowed with costs, and the plaintiffs' application before the superior court dated 3rd May, 1997 is dismissed with costs. As far as the suit is concerned, the parties may decide on their next course of action.
• The Court of Appeal dismissed the plaintiffs' application for taking of accounts, which was not part of the original plaint. The learned judge's assumption to waive interest and grant payment in instalments was found to be erroneous and without jurisdiction.

Contract Value

Legal Principles

• The court emphasized that parties are bound by the terms of their contracts unless there is evidence of coercion, fraud, or undue influence. The plaintiffs could not challenge the interest rates agreed upon in the charge instrument.
• The appeal court found the learned judge erred by substituting the agreed interest rate and taking jurisdiction to settle accounts without proper procedural basis, acting ultra vires his authority.

Precedent Name

Key Disputed Contract Clauses

• The security clause in the charge instrument allowed the bank to sell the plaintiffs' property if the loan was not repaid. The plaintiffs sought an injunction to prevent this, but the court affirmed the bank's contractual right to enforce the charge by selling the property after default, aligning with the terms agreed upon in the charge.
• The parties disputed the interpretation of the interest rate clause in the charge agreement, which specified a minimum of 20% per annum on reducing balances. The plaintiffs argued the bank's application of higher rates (e.g., 18% and 12%) was punitive and invalid, while the court upheld the bank's right to charge prevailing rates as per standard banking practices and contractual terms. The clause emphasized that interest was payable monthly in arrears.

Cited Statute

Judge Name

• Shah
• Tunoi
• Keiwua

Passage Text

• "This is a clear case in which the plaintiffs borrowed some money from the bank and defaulted in payment. They made use of this money and must surely pay back. They have enjoyed these facilities since 1992. They cannot escape liability."
• "It is clear beyond peradventure that save for those special cases where equity might be prepared to relieve a party from a bad bargain, it is ordinarily no part of equity's function to allow a party to escape from a bad bargain."
• "The learned judge erred not only in substituting what he thought ought to have been the proper rate of interest in place of what was agreed between the parties but he also erred in assuming jurisdiction to hear arguments, and rule thereon, on taking and settlement of accounts when such a relief was not part of the plaintiff's claim."

Damages / Relief Type

• Injunction restraining the defendant from selling the 2nd plaintiff's property until the suit's determination.
• Declaration that the 1st plaintiff has a right to redeem the charged property LR Number 209/9499.
• Special damages and costs of the suit, with interest at court rates, totaling over Shs 100,000,000 as per the defendant's claims.