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

Key Facts

Transaction Type

Issues

• A dispute arose over the method of interest calculation. The defendant (bank) charged compounded monthly interest at rates above 20%, while the plaintiffs claimed the bank erroneously used simple interest at 18% or 12%. The appellate court affirmed that the bank was entitled to charge compounded interest as per the charge instrument, rejecting the plaintiffs' calculations as legally invalid.
• The court's authority to waive interest rates set in a loan agreement was challenged. The learned judge ordered a waiver of certain interest percentages, but the appeal argued that courts cannot unilaterally alter contractual terms without evidence of coercion, fraud, or undue influence. The appellate court held that the judge erred by substituting his view of the interest rate for the agreed-upon 20% minimum, emphasizing that parties are bound by their contracts unless exceptional circumstances apply.
• The judge erroneously took and settled accounts without a proper basis in the plaint. The plaintiffs did not initially seek account-taking, and the judge proceeded ad hoc, violating procedural rules (Order XIX rule 1 and Order XX rule 16 of the Civil Procedure Rules). The appellate court held that judges are not accountants and must not assume this role absent a specific prayer in the plaint.

Holdings

• The Court of Appeal overturned the High Court's decision to waive interest charged by the bank, emphasizing that courts cannot rewrite contractual terms unless coercion, fraud, or undue influence are proven. The plaintiffs were bound by the agreed interest rates and penalties, and the High Court judge erred in assuming the bank would waive interest.
• The Court dismissed the High Court's order for the bank to refrain from selling the charged property, noting the plaintiffs' failure to repay loans and the bank's right to enforce security. The plaintiffs' position shifted from seeking judgment against the bank to owing a substantial amount, which the Court acknowledged.
• The Court ruled the High Court judge exceeded jurisdiction by granting relief to take accounts, which was not part of the plaintiffs' original claim. Such procedural matters require specific contractual provisions or court orders under the Civil Procedure Rules, which were absent here.

Remedies

• The plaintiffs' application for relief, including the taking of accounts, is dismissed with costs. The court found the lower court's ruling unsustainable in law.
• The appeal is allowed with costs, and the plaintiffs' application before the superior court dated 3rd May 1997 is dismissed with costs. The status quo preceding the filing of the suit in the superior court now prevails.
• The court restored the status quo that existed before the filing of the suit in the superior court, as the appeal overturned the lower court's orders.

Contract Value

Legal Principles

• The court emphasized that parties to a contract are bound by its terms unless there is evidence of coercion, fraud, or undue influence. The plaintiffs could not escape liability for the loan and interest as stipulated in the charge agreement, even if the interest rates were high.
• The ruling of the learned judge was found to be ultra vires because he assumed jurisdiction to take and settle accounts without a proper legal basis. This overstepped the court's authority as outlined in the Civil Procedure Rules.
• The court highlighted that judges should not act as accountants, as taking and settling accounts is not within their procedural authority. The judge's ad hoc approach to accounts was deemed unprocedural and a violation of the separation of judicial and administrative functions.

Precedent Name

• Fina Bank Limited vs Spares & Industries Limited
• Harilal & Company & another vs. The Standard Bank Limited

Key Disputed Contract Clauses

• The charge instrument specified a minimum interest rate of 20% per annum, compounded monthly. The plaintiffs contested the bank's application of this rate, arguing it was excessive and improperly calculated. The court upheld the contractual validity of the 20% minimum rate and the bank's right to compound interest as agreed.
• The contractual terms allowed the bank to enforce the property charge upon default. The plaintiffs claimed they adhered to rescheduled payments, but the court found they defaulted, justifying the bank's right to sell the charged property. The judge's assumption that the bank would waive interest was overturned.

Cited Statute

Judge Name

• Shah
• M.M.O. Keiwua
• P.K. Tunoi

Passage Text

• "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 position in this matter is that the bank has shown that it is owed about 100 million by the plaintiff.
• 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

• Special damages together with interest at court rates (amount unspecified in the plaint).
• Declaration that the 1st plaintiff has a right to redeem the charge registered against the 2nd plaintiff's property LR Number 209/9499 Dandora Nairobi.
• Injunction restraining the defendant company, its servants and/or agents from selling the 2nd plaintiff's property LR No 209/9499, Dandora, Nairobi.