Canva Trading Kenya Ltd Mombasa v Mwanasema Ali Mwaguya [2021] eK;R

IN THE MICRO AND SMALL ENTERPRISES TRIBUNAL (MSET)

AT NAIROBI

MSET MOMBASA 8 OF 2021

CANVA TRADING KENYA LTD MOMBASA…........................CLAIMANT

VERSUS

MWANASEMA ALI MWAGUYA…........................................RESPONDENT

JUDGEMENT

1. Mwanasema Ali Mwaguya approached Canva Trading Kenya Ltd Mombasa, a micro finance lender, about August 2019 seeking a loan facility in the sum of Kshs.16,500/- payable within one month at an interest rate of 20% per month. The loan was approved on 8^th August 2011 and the Respondent was to begin payment of the loan amount from 8th October 2011 after a one-month grace period and it was to be repaid as Kshs. 19,200/-.

2. It appears that Mwanasema Ali Mwaguya was unable to meet his obligation to Canva Trading Kenya Ltd Mombasa, to repay the debt when it fell due, as a consequence of which Canva Trading Kenya Ltd tried reaching him severally on the outstanding debt to no avail.

3. Canva Trading Kenya Ltd approached the Micro and Small Enterprises Tribunal and filed a claim under certificate of urgency on 4^th of May 2021 for an unpaid sum of Kshs 72,600/-. On the 12^th of May 2021, the matter came up for mention before the Tribunal with both parties present. The parties consented that the principal debt was Kshs 16,500/- and they were to sit and agree on the outstanding interest amount. The Cause was certified as urgent and a mention date of 24^th May 2021 to confirm compliance.

4. The matter came up for mention virtually on 24th May 2021 where Eunice Okal the Managing Director of Canva Trading Kenya Ltd represented the Claimant. Mwanasema Ali Mwaguya did not enter appearance and Eunice informed the Tribunal that she had tried reaching the Respondent for them to discuss the issue of the interest payable but the Respondent had not availed himself. The matter was set for hearing on the 1^st of July 2021 in Mombasa.

5. On 1^st of July 2021, the matter came up for hearing with both parties present. Eunice Okal the Managing Director for the Claimant represented Canva Trading Kenya Ltd. She requested the Tribunal to help her recover the amounts owed to her, which totalled to Kshs. 72,600/-.

6. Mwanasema Ali Mwaguya appeared in person and indicated that he did not attend the mention on 24^th May 2021 as he saw the message reminding him to enter appearance when it was already too late. He informed the Tribunal that he had previously taken two loans with the Claimant, which he paid faithfully. The current unpaid loan was due to his job loss in September of 2019. Though he does not object that he owes the Claimant Kshs 16,500/-, he disputes the interest charged of Kshs 56,100/- and requested the interest to be reduced. He made an offer to pay Kshs 16,500/- as the principal sum beginning of September and an interest of Kshs. 16,500/- in two equal instalments of Kshs. 8,250/- each at the end of September and October or the beginning of November.

7.  Eunice declined the proposal and requested him to pay the full amount of Kshs. 72,600/- in instalments considering the period he has stayed without repaying.

8. It is clear the issue in question is the interest payable in the matter as the principal sum is not in dispute by either of the parties to the cause.

9. The Tribunal and parties dispensed with the requirement for further submissions and the matter was set for judgement on 15^th of July 2021.

10. The Tribunal notes that we do not rewrite contracts or agreements for the parties. The loan application document dated 13^th August 2019 indicates that the loan was to be repaid at an interest rate of 20% per month and as a result of the Respondent’s default, the debt amounted to Kshs 72,600/- out of a principal sum of Kshs. 16,500/-. On the determination of the issue of interest payable, the Tribunal has applied the common law doctrine of the In Duplum rule. In Kenya Hotels Ltd v Oriental Commercial Bank Ltd (Formerly known as Delphis Bank Limited) [2019] e KLR it was opined that:

“In duplum" is a Latin phrase derived from the word “in duplo” which loosely translates to “in double”. Simply stated, the rule is to the effect that interest ceases to accumulate upon any amount of loan owing once the accrued interest equals the amount of loan advanced. This principle has been applied by the courts with reasonable degree of consistency. See Lee G. Muthoga V. Habib Zurich Finance (K) Limited & another [2016] eKLR, Mwambeja Ranching Company Limited & another V. Kenya National Capital Corporation [2019] eKLR

In Mwambeja Ranching Company Limited & another V. Kenya National Capital Corporation [2019] eKLR, the court ruled that.

“The In duplum rule is concerned with public interest and its key aim was to protect borrowers from exploitation by lenders who permit interest to accumulate to astronomical figures. It was also meant to safeguard the equity of redemption and safeguard against banks making it impossible to redeem a charged property. In essence, a clear understanding and appreciation of the in duplum rule is meant to protect both sides”.

The rule was recently reiterated by the Court of Appeal in Housing Finance Company of Kenya Limited v Scholarstica Nyaguthii Muturi & Another [2020] e KLR in the following terms:

“As we have shown section 44A of the Banking Act came into force on the 1st May, 2007. That provision of law sets up the maximum amount of money a banking institution that grants a loan to a borrower may recover on the original loan. The banking institution is limited in what it may recover from a debtor with respect to a non performing loan and the maximum recoverable amount is defined as follows in section 44A(2):

“The maximum amount referred in subsection (1) is the sum of the following –

a) The principal owing when the loan becomes non -performing;

b) Interest, in accordance with the contract between the debtor and the institution, not exceeding the principal owing when the loan becomes non- performing; and

c) Expenses incurred in the recovery of any amounts owed by the debtor.”

By that provision if a loan becomes non -performing and the debtor resumes payment on the loan and then the loan becomes non-performing again, the limitation under the said paragraphs shall be determined with respect to the time the loan last became non- performing. In addition, by section 44A (6) it is provided that:

“This section shall apply with respect to loans made before this section comes into operation, including loans that have become nonperforming before this section comes into operation.”

11. The In Duplum rule provides that with respect to non- performing loans, the contractual interest should not exceed the principal owing when the loan becomes non- performing. Any expenses incurred in the recovery of the amounts owed by the debtor may be recovered.

12. The Respondent had not made any payment towards the debt owed and in line with the In Duplum rule, interest payable should not exceed Kshs. 16,500/-. We understand that the Claimant is not a registered financial institution under the Banking Act, however since it applies itself as a lender, the Tribunal has followed the common law In Duplum rule in the determination of the interest payable in light of public interest and to protect the borrower from unconscionable business practices.

13. The Tribunal hereby orders the following to be paid by the Respondent:

a. Principal sum of Kshs. 16,500/-

b. Interest of Kshs. 16,500/-

c. Costs of Kshs. 10,000/- incurred by the Claimant in this matter to be borne by the Respondent.

SIGNED AND DELIVERED ELECTRONICALLY 15th DAY OF JULY 2021