Kenya Law Weekly Issue 007/22-23

Section 15(2) of the Higher Education Loans Board Act declared unconstitutional to the extent that it leads to interest rates and fines becoming more than the principal amount advanced

Mugure & 2 others v Higher Education Loans Board (Petition E002 of 2021) [2022] KEHC 11951 (KLR) (Civ) (19 August 2022) (Judgment)
Neutral citation: [2022] KEHC 11951 (KLR)
High Court at Nairobi
A Mabeya, J
Reported by Kakai Toili
Download the Decision

Summary Significance: The petitioners had borrowed loans from the respondent to facilitate their undergraduate studies and claimed that the respondent had been charging exorbitant interest and penalties which often grew beyond double the principal amounts owed thereby making repayment difficult. The court held among others that being of public interest, the in duplum rule was applicable for those lending monies as it did to banks. The court further held that, as borrowers, the petitioners were being discriminated upon from those borrowing from banks who were protected by section 44A of the Banking Act.
Banking Law – in duplum rule - nature and rationale of the in duplum rule - whether the in duplum rule was applicable to bodies lending monies other than banks – Banking Act, Cap 488, section 44A.
Constitutional Law – fundamental rights and freedoms – enforcement of fundamental rights and freedoms – right to equality and freedom from discrimination - whether the continued imposition of interest and penalties on non-performing loan accounts by the Higher Education Loans Board even when the interest and penalties exceeded the principal amount amounted to discrimination where those borrowing from banks were protected by the in duplum rule in section 44A of the Banking Act - Banking Act, Cap 488, section 44A.

Brief facts:
The petitioners were beneficiaries of the Higher Education Loans Board’s (the respondent) loan to finance their undergraduate studies. The petitioners’ case was that they borrowed loans from the respondent to facilitate their undergraduate studies and that the respondent had been charging exorbitant interest and penalties which often grew beyond double the principal amounts owed thereby making repayment difficult.
The petitioners prayed for among others, declarations that; by imposing interest amounts and penalties that exceed the principal amount, the respondent was in contravention pf articles 43 (1)(e) and (f) of the Constitution of Kenya, 2010 (Constitution) and section 44(A)(1) and (2) of the Banking Act; that section 15(2) of the Higher Education Loans Board Act (HELB Act) was unconstitutional to the extent that it led to interest rates and charged becoming equal to or more than the principal amounts.

Issues:

Whether the in duplum rule was applicable to bodies lending monies other than banks.
Whether the continued imposition of interest and penalties on non-performing loan accounts by the Higher Education Loans Board even when the interest and penalties exceeded the principal amount amounted to discrimination where those borrowing from banks were protected by the in duplum rule in section 44A of the Banking Act.
What was the nature and rationale of the in duplum rule in Kenya?

Relevant provisions of the law
Higher Education Loans Board Act, 1995
Section 15 - Obligations of the loanees
(2) Any loanee who fails or neglects to satisfy the requirements of subsection (1) within the stipulated time shall, in addition to any other action that the Board may take against him, be guilty of an offence and liable to a fine of not less than five thousand shillings in respect of each loan deduction that remains unpaid in accordance with provisions of subsection (1), and such fine shall be payable to the Board.

Held:

In duplum was a Latin phrase derived from the word “in duplo” which loosely translated to “in double”. Simply stated, the rule was to the effect that interest ceased to accumulate upon any amount of loan owing once the accrued interest equaled the amount of loan advanced.
In Desires Derive Ltd v Britam Life Assurance Co (K) Ltd (2016) eKLR, it was held that the in duplum rule was only applicable in the circumstances of banks only. Since its introduction on May 1, 2007, courts had pronounced on it variously.
The in duplum rule was concerned with public interest. The rule was introduced in Kenyan laws to tame the appetite of lenders who had made recovery of interest on advances a cash cow. It was intended to protect borrowers from exorbitant interest accumulation on loans and limit the amount recoverable by a lender on a defaulted facility to no more than double the principal owing when the loan had become non-performing plus recovery expenses.
Being of public interest, the in duplum rule was applicable for those lending monies as it did to banks. The loanees of the respondent’s facilities were helpless students. They acquired the subject loans to finance their education. The fund could have been established to help the less fortunate to access education through the fund. In most cases, after studies, the majority of the loanees found themselves jobless. The loan matured before they secured employment and interest and penalties kicked in. It would be unfair to have the loan continue attracting interest plus penalties ad infinitum. With the shrunken economy, scarce employment opportunities, it was definitely a nightmare for those loanees. The monthly fines would eventually make the amount irrecoverable. That was unacceptable.
The continued imposition of interest and penalties on non-performing loan accounts even when the interest and penalties had exceeded the principal amount violated the in duplum rule. As borrowers, the petitioners were being discriminated upon from those borrowing from banks who were protected by section 44A of the Banking Act. Although their rate of interest was low, their personal circumstances of being students from humble and financially challenged background, necessitated protection.
Their socioeconomic rights under articles 43(1)(e) and (f) and consumer rights under article 46(1)(c) of the Constitution had been violated. That had the counter-effect of making it difficult for the petitioners and others in the same situation to conveniently repay the loan. The petitioner’s case did not challenge the State in the action it had taken, but rather sought the aid of the court to give effect to those measures.
Having recognized the gap that existed, that was, the lack of legislation that would protect borrowers from exorbitant and never-ending interest rates, the state introduced the in duplum rule vide section 44A of the Banking Act. Through that legislation, the State sought to ensure fairness and justice in matters borrowing even where the lender had a higher bargaining power. There was nothing to bar the extension of such relief and accommodation to the specific borrowers under the HELB Act.
The application of the in duplum rule to the loans borrowed by the petitioners was not discretionary by the respondent but as a matter of right and law. The court would not declare section 15(2) of the HELB Act unconstitutional, but it would read into that section the in duplum rule. That upon the amount due clocked double the principal sum, the interest and fines would cease to apply.
Since the taking of the loans was not denied nor the failure to make substantial payment, and considering that the respondent indicated that it was taking steps to apply the in duplum rule, it was time the petitioners then now took steps to perform their part of the contracts.

Petition allowed with each party to bear own costs.
Orders:

A declaration was issued against the respondent that by imposing interest amounts and penalties or fines that exceeded the principal amount, the respondent was in contravention of article 43(1)(e) and (f) and article 27 of the Constitution.
A declaration was issued that section 15(2) of the HELB Act was unconstitutional to the extent that it led to interest rates and fines becoming more than the principal amount advanced.
A declaration was issued that the respondent was not entitled to recover from the petitioners or its loanees an amount exceeding double the amount advanced in contravention of the in duplum rule.

Kenya Law Case Updates Issue 007/22-23
Case Summaries


CONSTITUTIONAL LAW	Failure to include an option of none of the above in ballot papers did not infringe on the electoral rights of Kenyans. Gachunga v Independent Electoral Boundaries Commission (Petition E028 of 2021) [2022] KEHC 12685 (KLR) (28 July 2022) (Judgment) Petition E028 OF 2021 High Court at Nakuru HK Chemitei, J July 28, 2022 Reported by John Ribia Download the Decision Summary Significance: The case underscored the principle of separation of powers by finding that the High Court did not have the power to direct independent constitutional bodies on how to conduct their affairs. *Constitutional Law* – separation of powers – powers of the High Court vis-à-vis powers of independent constitutional commissions - whether the High Court had the power to give directions to the IEBC, an independent constitutional commission, on how to conduct its functions – Constitution of Kenya, 2010 articles 82(d) and 248(2). *Electoral Law* – Independent Electoral and Boundaries Commission – role of IEBC to design and include the options available in a ballot paper for each elective position – claim that failure to include an option of ‘none of the above’ in ballot papers infringed the rights of Kenyans - whether failure by the IEBC to include the option of ‘none of the above’ on ballot papers infringed on the electoral rights of voters. Brief facts The petition before the court sought orders for the court to compel the respondent (IEBC) to include “None of the above” option on the ballot papers to allow voters who do not wish to vote for any of the candidates to exercise their right to reject without violation of the secrecy of their decision. The objective among others was to enable voters who came to the polling booth and decide not to vote for any of the candidate in the tray, to exercise their right by voting on the ballot paper section indicated as “none of the above” while maintaining their right of secrecy. Issues: Whether the option of ‘none of the above’ not being an option in the ballot box in the general elections violated the petitioner’s rights. Whether the High Court had the power to give directions to the IEBC, an Independent Constitutional Commission, on how to conduct its functions.Read More.. Held: The powers and functions of the Independent Electoral Boundaries Commission (IEBC) were enshrined under article 88(4) of the Constitution of the Kenya. Under article 248(2) the respondent was listed as an Independent Commission amongst other commissions. The High Court could not purport to give to the respondent directions on exactly how to carry out its powers and functions. Further, the courts ought not to be drawn into determining how the people of Kenya should exercise their voting rights. That was the preserve of the Legislature. The applicant was asking the court to include a fundamental input to Kenya’s election laws which needed the public to participate in the usual manner. Public participation would be an integral part of such an addition or amendment. Article 82(d) of the Constitution of Kenya, 2010 provided that Parliament was to enact legislation on election on the conduct of elections and referenda and its regulation and efficient supervision of elections and referenda, including the nomination of candidates for elections. If the petitioner held the view that there was a need to have the ‘none of the above’ option to be included in the ballot paper, it was open to him to lobby the legislative arm of government to do the needful. The court did not find any reason to allow the petition noting that there was no evidence that not including “none of the above” had breached the petitioner’s right or the general public. No evidence had been demonstrated to show that the public who would wish to exercise such right had been disenfranchised. There was no evidence that the respondent had breached any provisions of the Constitution or any laws that would compel the court to allow the application. The better way was for the applicant and those of his brethren to agitate through memoranda to Parliament to carry out an amendment to the laws to accommodate such of their interest. Application dismissed.
CIVIL PRACTICE AND PROCEDURE	Pleadings filed electronically (soft copies) must also be filed physically through hard copies. Sonko v Clerk, County Assembly of Nairobi City & 11 others (Petition (Application) 11 (E008) of 2022) [2022] KESC 28 (KLR) (11 July 2022) (Ruling) Petition (Application) 11 (E008) of 2022 Supreme Court of Kenya PM Mwilu, SC Wanjala, NS Ndungu, I Lenaola and W Ouko, SCJJ July 11, 2022 Reported by John Ribia Download the Decision Summary Significance: The Supreme Court declined to strike out an appeal on grounds that the appellant had only filed the soft copy of the appeal on the online registry but had not filed the same in the physical registry. Whereas the court decided to hear and determine the substantive appeal, it frowned upon the conduct of only filing an appeal on the online portal and not serving the respondents. *Civil Practice and Procedure* – appeals – appeals at the Supreme Court – where an appeal was filed on the online registry but not filed on the physical registry – where the said appeal was not served to the respondents in time - whether filing of a soft copy of an appeal on the court’s online registry and not filing the hard copies (physical copies) was grounds to strike out the appeal - Supreme Court Rules, 2020, rule 12(1). Brief facts The 1st respondent filed the instant application in which it sought for the notice of appeal to be struck out for failure to file an appeal within 30 days of the delivery of the Judgment. The application was on the grounds that the appellant lodged a soft copy notice of appeal in the Judiciary’s online portal in time but did not file or serve the hard copies in time. Subsequently the 1st respondent sought for the notice of appeal and petition of appeal filed by the appellant to be struck out. Issue: Whether filing of a soft copy of an appeal on the court’s online registry and not filing the hard copies (physical copies) was enough grounds to have such an appeal struck out. . Read More... Relevant provisions of the Law. Supreme Court Rules, 2020 Rule 12. *12. Filing of documents* (1) Pleadings and any other document filed in the Court shall be in both printed and electronic form. (2) A party filing any document shall ensure consistency in the printed and the electronic formats. (3) In case of any inconsistency between the hard copy and soft copy, the hard copy shall prevail. (4) Where a document is lodged in a sub-registry, the deputy registrar receiving the same shall transmit it to the Registry. Held : The appellant filed a notice of appeal at the Court of Appeal 4 days after the Court of Appeal Judgment. The appellant filed his petition of appeal on the Supreme Court's online platform on the last day for doing so. Rule 12 of the Supreme Court Rules provided that the printed copy of any pleading, while matching the electronic copy, was to be filed simultaneously with the latter. The rule remained the operative rule in the Supreme Court. Though the appellant sat on the printed copy for more than one month, once the appellant was directed to file the same, he did so within 2 days and thereafter served the respondents. While the conduct of the appellant in not filing the printed copy timeously had not been explained, the circumstances as outlined above would not lead to any adverse orders against him and although his conduct was nonetheless to be deprecated, the court would focus on the substantive appeal. Motion dismissed and preliminary objection overruled.
LABOUR LAW	Simiyu v Nzoia Sugar Company Limited (Employment and Labour Relations Claim E005 of 2021) [2022] KEELRC 1758 (KLR) (12 May 2022) (Judgment) Employment and Labour Relations Claim E005 of 2021 Employment and Labour Relations Court at Bungoma JW Keli, J May 12, 2022 Reported by John Ribia Download the Decision *Labour Law* - employment – claim for payslip deductions that were unremitted to statutory bodies - whether in an employment claim a claimant had the power to claim for a refund of funds that were deducted from their payslip that were payable to statutory bodies such as NHIF, NSSF and RBA but were unremitted to the said bodies. *Labour Law* - employment – claim for deductions that were unremitted to discharge the claimant’s bank loans - claim for deductions that were unremitted to a community based organisation - whether in an employment claim a claimant had the power to claim for a refund of funds that were deducted from their payslip that were payable Banks as a discharge of loans but were unremitted to the Banks - whether in an employment claim a claimant had the power to claim for a refund of funds that were deducted from their payslip that were payable to a community based organisation (CBO) but were unremitted to the CBO. Brief Facts The claimant, a retired employee, filed claim against the respondent, his former employer. The claimant sought refund of unremitted deductions with interest and salary arrears and unpaid gratuity. It was the claimant’s case that he was entitled to gratuity that was not paid and he was entitled to a 6% salary increment and a 6% pension increment which was not paid. The claimant contended that the respondent never remitted the deductions made to his pay to the various organisations and as a result sought the refund of the deductions. He contended that he respondent deducted from the claimant’s salary totalling to Kshs. 23,800/- which they failed to remit to NHIF; and Kshs. 30,600 which the respondent failed to remit to NSSF; and Kshs.119,100, deducted at Kshs.1,000/- per month, which was never remitted to the Bumula Nzoia Employee Bunze Contribution (CBO). The claimant also sought payment of unremitted loan deductions and the interest accrued on the same. Issues: Whether in an employment claim a claimant had the power to claim for a refund of funds that were deducted from their payslip that were payable to statutory bodies such as NHIF, NSSF and RBA but were unremitted to the said bodies. Whether in an employment claim a claimant had the power to claim for a refund of funds that were deducted from their payslip that were payable Banks as a discharge of loans but were unremitted to the Banks. Whether in an employment claim a claimant had the power to claim for a refund of funds that were deducted from their payslip that were payable to a community based organisation (CBO) but were unremitted to the CBO. Whether based on the facts of the instant case the claimant was entitled to receive damages for a salary increment that was not effected. Read More... Held : There was no specific mention of salary increment. The proposed increment was not automatic but subject to the respondent’s financial status improving. The respondent’s board approved payment of annual increment to management staff from July 1, 2017 when finances allowed. The Collective Bargaining Agreement of 2018 had increment but for only unionisable staff and the claimant was not among them. He was in management. The claimant retired voluntarily. The increment was subject to financial situation of the company improving. There was no evidence before the court that other management staff benefited for the said increment excluding the claimant. The claim for 6% salary increment was not proved and the same was dismissed. The claim for 6% pension arrears also failed. The claimant confirmed he was paid pension by Trustee. The claimant’s final dues and gratuity was Kshs.56,836 and was held by the respondent. The final dues gross was Kshs.59,063.50, less tax total Kshs.56,836.05. Gratuity and final due was subject to statutory deductions and amount payable is Kshs.56,836.05. NHIF was a statutory body with powers to recover unremitted dues from the respondent if not remitted. It was not for the court to recover NHIF dues on claim by the employee. The claimant ought to have lodged a claim with the statutory body which the mandate and powers to even levy penalty under section 14 of the NSSF Act (Cap 258). The court had no basis of interfering with the work of the statutory body on its mandate. Only the NSSF could impose penalties for non-remittance. The claim for NSSF contribution and the said penalty should be pursued with the said statutory body. The entire claim for unremitted NSSF dues and penalties were declined. Like NSSF, the Retirement Benefits Authority regulated affairs of pension including disputes on payable pension and any penalties. The claimant ought to pursue his claim under pension with the said authority. The court had no basis for interfering with statutory duties of the Authority. The court dismissed all the claims on pension. The Claimant had remedy under the Retirement Benefits Authority of Kenya pursuant to the provisions of the Retirement Benefits Act. On basis of an admission by the respondent of having never remitted the deducted monies to the Bumula Nzoia Employee Bunze Contribution (CBO). The claimant was entitled to refund of Kshs. 119,100 by the respondent. The respondent had an MOU with the National Bank of Kenya and Family Bank. The respondent failed to remit deducted loan amounts. It was the obligation of employer to keep records and produce them in court. By failing to produce entire payroll on recoveries the employer failed in its obligation. The claim for National Bank outstanding loan and accrued interest was provided on balance of probabilities and the same was awarded as prayed of Kshs 1,412,614/- being outstanding loan arrears inclusive of the charged interest. The respondent had an obligation to produce payroll indicating recoveries and remittances. It was aware of the claim from the demand letters and at time of filing response to the claim. The tabulations out unremitted loan deduction were secondary evidence having been extracted. The claim by the claimant for unremitted loan and interest of Kshs. 4,350,000 was not rebutted. The claimant was entitled to payment of Kshs.1,412,614/- due to National Bank of Kenya and Kshs.4,350,000 due to Family Bank being unremitted deductions and accrued interest on the loans at time of filing suit. Statement of claim partly allowed. *Orders* The respondent was ordered to pay gratuity and final dues payment Kshs.56,836; unremitted National Bank of Kenya loan deductions and accrued interest of Kshs.1,412,614; unremitted Family Bank deductions plus interest accrued on the bank loan for the sum of Kshs. 4,350,000; and Interest on I, ii, and iii above from date of filing suit at court rate until payment in full. The respondent was to bear costs of the suit.

Kenya Law Weekly Issue 007/22-23

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