Case Studies

Selected Case Studies

Captain J.N. Wafubwa –VS- HOUSING FINANCE (K) LTD

HCCC NO. 385 OF 2011- Delivered on 26 April 2012 by E.K.O. OGOLA Judge

Summary of the facts

The defendant, a banking institution extended a mortgage facility to the plaintiff, the borrower for a period of 18 years, but did not service the same as contracted and soon fell into heavy arrears which are not disputed. The defendant then sought to exercise statutory power of sale and staged a public auction and sold the property for Kshs. 4.5 million to M/S United Millers Limited who were the highest bidder at the fall of the hammer on 8th November 1996. The said Purchaser accordingly in terms of the sale paid the requisite fee of 25% down payment amounting to Kshs. 1,125,000.00 but failed to complete the transaction within the stipulated time frame as per the conditions of sale and they forfeited the full deposit of Kshs. 1,125,000.00 to the defendant. Another auction was arranged on 11th July 1997 but the same could not proceed as the plaintiff had injunction order against the sale, which was dismissed, stated obita, that the plaintiff cannot be a beneficiary to the auction deposit.
Arising from the above the plaintiff filed a suit claiming:-

  • An order that the balance Kshs. 3,395,662.80 be paid to the plaintiff
  • An order for general damages against the defendant for the illegal eviction from the suit properties.
  • Mesne profit of Kshs. 15,000.00 p.m.

The result of the evidence from all the parties is that the main disagreement between the parties related to the 25% deposit sum of Kshs, 1,125,000.00 paid pursuant to the aborted auction sale. The plaintiff claims the sum as dues to the mortgage account. The defendant submits that the same is for the Bank’s Profit and Loss account.


Court’s Ruling
The defendant was not in anyway involved in the eviction of the plaintiff from the suit property. No amount of legal imagination or insinuation can make a defendant a party to the suit. That being so, prayer b and c were dismissed.
In relation to right of redemption the plaintiff lost the same at the fall of the hammer. However, this fall of the hammer, apart from divesting the plaintiff of his right of redemption, did not transfer the property to the purchaser as the contract was not concluded. The plaintiff’s right of redemption was subsequently revived, either in law or by waiver by the defendant or by both the law and the waiver and conduct of the defendant. This is because the property was later sold by private treaty which means the plaintiff lost his right of redemption at the second sale and not the auction.


Judges general observation (dicta)
A customer was loaned Kshs. 650,000.00 in 1989. Within a few years he is in arrears and soon his property is auctioned at an inconclusive auction pursuant to which a deposit of 25% is paid, which is actually enough to clear the loan arrears and balances. In 2009, the same property is sold by private treaty at the same price of Kshs. 4.5 million it was meant to be sold 13 years earlier. The entire 4.5 million was taken by the bank, which in 2009 still required more than Kshs. 11 million from the charger. That can easily be Kshs.15 million now. Really where is justice? Banks cannot just hide behind the contracts they make; regardless of how unjust they are, to literally destroy their customers. Without their customers the banks cannot operate. A time has come for banks in Kenya to look into the eyes of their customers and answer the question: Are banks Kenyan? Or have they just entered Kenya for business?
Banks in Kenya reign large. I am reminded of a predator who after killing their prey is not satisfied to leave the carcass to the vultures, but become both the predator and the vulture, killing the prey and gleaning the meat from the carcasses to ensure the prey is really dead. I am also reminded of a robber killing his victim and not only attending the funeral, but insisting on carrying the casket to the grave to confirm that his victim is dead and buried.
Else, how does one explain a situation or cases at hand? Wasn’t there no time when the defendant in this matter could say” this is the case and time to close this account”. It is a sorry state of affairs in our country. As all sectors of our society are being reformed, banks should not be left behind. They need to look into the balls of their customers’ eyes and answer the question: “are banks Kenyan?”

Johnson Kiema M. Mulaimu –VS- HOUSING FINANCE (K) LTD
HCCC NO. 308 OF 2007- Delivered on 13th December 2012 by J.M. Mutava Judge


The plaintiff sort the following orders:-

  • A permanent injunction to restrain the defendant from auctioning, transferring or dealing in any manner with the plaintiff’s property
  •  An order compelling the defendant to render accounts in respect of the plaintiff’s mortgage.
  • An order compelling the defendant to refund any money overpaid to it in the event the court finds an overpayment once accounts are rendered.
  • Cost of the suit and interest.

Summary of the facts

The plaintiff charged his property to the defendant to secure a facility of Kshs. 1,900,000.00 advanced to him by the defendant, which was to be repaid by way of monthly installments of Kshs. 45.544.00 for a period of ten (10) years. Pursuant to the loan agreement, the plaintiff paid a sum of Kshs. 91,088.00 being the deposit, a sum of Kshs. 21,329.00 being legal fees and the first installment of Kshs. 45,544.00 since 1996 and has paid a total of Kshs. 4,497,400.00 which the defendant had not accounted for.
The plaintiff further contention is that the sum of Kshs. 4,497,400.00 already paid to the defendant is over and above what is required under Section 39 of the Central Bank of Kenya Act.
On 3rd July 2006, the bank raised a claim of Kshs. 3,507,557.90 and the bank threatened to sell the property if he did not pay the money. The plaintiff did not pay the money as he required to defendant to render accounts. Thereafter he filed suit against the defendant. He then contacted IRAC for recalculation of his mortgage account, of which a report was given showing that he, owed the defendant a sum of Kshs. 929,416.38.
Mr. Wilfred Abincha Onono, the managing consultant of IRAC confirmed that his findings in the report were that as at 31st July 2006 the recalculated loan balance owed was Kshs. 929,416.38 compared to the defendant’s recalculated figure of Kshs. 3,506,064.00
Courts ruling
By consent order recorded on 5th July 2007, Hon. Mr. Justice Michael Khamoni direct each party to engage an expert to re-calculate the plaintiff mortgage account, which order has never been stayed, set aside or appealed against. Pursuant to that order the plaintiff engaged IRAC. Through the consent order, the court reduced the scope of the dispute between the parties to the single question of determining the correct quantum of interest payable. The dispute between the parties as to interest of rate payable, variation of such rates and the contractual commitments in that regard, the effect of Legal Notice No. 1458/1990, issues of variation notification of variation of interest, issues of whether proper accounts were kept, issues of levying default charges and their justifications, issues raised under Section 44A and 52 of the Banking Act and all other issues relating to the mortgage account were addressed in the expert report.
The court adopted the expert report by IRAC, which had not been sufficiently disputed by the defendant.
Terms of judgment:-

  • Judgment entered for the defendant against plaintiff in the sum of Kshs.929, 416.38 already deposited in court.
  •  The sum stated supra is released to the defendant.
  • Judgment entered for the plaintiff in term of the first prayer.
  • That the defendant forth with discharge and release the plaintiff’s property.

HCCC No. 2198 of 2000
Prof David Musyimi Ndetei -vs- Daima Bank Ltd Judgment delivered on 11/10/2005
Before: Lady Justice Mary Kasango

The plaintiff went to court seeking among other prayers a declaration that the defendant bank was not entitled to make certain irregular debits on his account namely; excess fee, facility fee, arrangement fee etc.  Interest Rates Advisory Centre (IRAC)’s expert testimony was that indeed the bank had levied extra charges which it could not prove had prior approval from Central Bank of Kenya.
Mr. Gerald Nyaoma, an official from the CBK, testified that Charges not sanctioned by the Central Bank of Kenya are illegal. He stated that under Section 44 of the Banking Act, any licensed financial institution was required at the commencement of its business to inform CBK the rates it was adopting as its charges; once that notification is given, that institution was prevented by Section 44 from changing that rate without Central Bank’s approval.
The Lady Justice Mary Kasango, while finding for the plaintiff stated that the defendant herein failed to discharge the evidential burden of disproving that the charges were compliant to the requirements of Section 39 of the Central Bank of Kenya Act Cap 491 when the restrictions were there and Section 44 of the Banking Act which require Central Bank’s prior approval to any increase in bank charges.
The plaintiff got a judgment for a refund of Kshs.5.5 Million thereby setting precedent for aggrieved borrowers.

HCCC No. 298 of 2008

Duncan Nderitu Wamae Vs Housing Finance

Ruling delivered on 09/07/2008 Before: Kimaru J.


The plaintiffs applied for an interlocutory injunction to restrain the defendant, its servants and/ or agents from selling, alienating, transferring or dealing whatsoever with the Plaintiffs property known as LR 209/8294/351 South C.

The Plaintiffs initially borrowed Kshs. 3,363,760 in 1996 and after paying off Kshs.
8,657,177.45, Housing Finance later served them with a demand letter of Kshs. 2,788,179.20.

Suspecting irregularities in the conduct of the account, they approached IRAC to have their accounts scrutinized after which they moved to court to challenge the balance demanded by the Bank submitting that they had already paid up to 2 1/2 times of the amount advanced and still a huge amount was being demanded.

Justice Kimaru ruled that the Legal Charge document obligated HFCK to notify the plaintiff on any change in interest rates. From the documents annexed to the affidavit and more particularly the Interest Recalculation Report by IRAC, it was clear to the Court that over time, the defendant had varied interest applied to the plaintiff’s account with no evidence showing notification by the defendant to the plaintiff.

Referring to Section 44A of the Banking Act (the In Duplum Rule, effective 1st May 2007), the Court ruled that even though the loan became Non- Performing after the coming into effect of the said amendment, the defendant failed to issue a notice setting out when the said loan became non- performing and should have also issued a further notice declaring the amount that was owed by the plaintiffs at the time it purported to exercise its statutory power of sale

The court found that since prima facie(on the face of it) the defendant did not follow the requirements as to notices as per Section 44A of the Banking Act, the right to sell the suit property in exercise of its statutory power of sale had not accrued. Interlocutory injunction granted pending the hearing and determination of the suit.

Consequently, it is now clear that before a Bank or Lender can exercise their statutory power of sale, they must first satisfy the Court that
a)    The borrower has received Notification of all interest rate changes/variations for each variation or change to the applicable interest rate made by the Bank/Lender
b)    The Bank/Lender must inform the borrower when their account last became Non-Performing for conformity with Section 44A of The Banking Act
c)     The Bank/Lender must inform the borrower what the respective amounts owing are on Principal Outstanding and Interest Outstanding

This is the first case to interpret the new requirements introduced by Section 44A of
The Banking Act and their effect on existing Loans, Mortgages and Advances.

HCCC NO. 563 OF 2006
Paul Hudson Kamau vs. Housing Finance (K) Ltd
Ruling Delivered on 05/12/2008
Before : Lessit J.


The plaintiff obtained a loan of Kshs. 1 million in 1993 which was repayable in 12 years.
DESPITE the client having consistently made monthly payments to the Bank, as at 30th June 2005, the Arrears outstanding amounted to Kshs. 2,464,148.80.

Suspecting irregularities in the conduct of the account, he approached IRAC to have the account scrutinized after which he moved to court to challenge the sale of his property on the grounds that:

  • The Defendant had unjustifiably purported to execute its power of sale over the Plaintiff’s property.
  • The Applicant was never served with the Mandatory ninety (90) days notice
  • The Defendant had FLAGRANTLY breached Section 44 of The Banking Act with impunity and purported to enforce the contract despite the breach.
    It was also the Plaintiff’s case that he was within the schedule of payment and claimed that the huge balance claimed had arisen from illegal interest charges imposed by the Defendant without sanction of Section 39(1) of The Central Bank of Kenya Act and in contravention OF Section 44 of The Banking Act.

HFCK, on their part, contended that the Judge should not consider the report of IRAC as it was a nullity.

In her ruling, Justice Lessit stated that:
that area which skill can be helpful to court in determination of questions of fact and in this instance, the issue whether the Defendant imposed the correct interest rate on the Plaintiff’s account. Invoking the provisions of Section 48 of The Evidence Act on expert witnesses, the Judge ruled that
1.    IRAC’s Interest Recalculation Report was admissible in court and should be tested at trial.
2.    The burden to show compliance with Section 39 of The Central Bank of Kenya Act and Section 44 of The Banking Act lies with the Defendant. HFCK did not make any attempt to explain whether it complied with these statutory provisions.
3.    The court found that there was prima facie evidence that the Defendant may have contravened statutory provisions and that it may not have calculated the interest properly which events may have led to an increase instead of a decrease in the plaintiff’s loan balance.
Where damages can be an adequate remedy, an injunction should issue where the respondent is shown to be high handed or oppressive in its dealing with the Applicant which is the case in this matter.

An injunction was therefore granted on the above grounds and upon the Plaintiff depositing in court within 30 days Kshs. 166,739.54 which he admitted to be owing to the Defendant.

John Silas Lenana Puleiy –VS- HOUSING FINANCE (K) LTD
HCCC NO. 144 OF 2003- Delivered on 16th October 2009 by Joyce. N. Khaminwa Judge
The plaintiff went to court seeking among other prayers a declaration that that the defendant overcharged and received more money than it was entitled to under the charge. Defendant charged interest contrary to the provisions of Section 44 Banking Act, Central Bank of Kenya Amended Act 2000 and auction of the property was irregular, unlawful, and wrongful and calculated to the chargers right of redemption and the plaintiff had suffered loss and damages all amounting to Kshs. 5,938,849/60.
An expert and qualified accountant (Mr. Onono Managing Consultant IRAC) gave evidence and stated that the defendant had charged Kshs. 63,681/10 contrary to Section 44 of the Banking Act and concluded that the account had been overcharged by sum of Kshs. 3,726,377/77 as at 30/09/2002.
The Lady Justice, Joyce. N. Khaminwa while finding for the plaintiff stated that the plaintiff had demonstrated that he was overcharged unlawfully and lost a sum amounting to Kshs. 5,938,494/60.
The plaintiff got a judgment for a Kshs. 5,938,494/60 plus interest at court rates from the date which the suit was filed and the cost of the suit.

Unfavorable Decision

Nairobi Ujuzi company limited Vs EQUITORIAL COMMERCIAL BANK
HCCC NO.179 of 2007- Delivered on 17th September 2015 by A.MABEYA Judge

A loan amounting to Kshs. 10,000,000.00 was advanced to the Plaintiff on 17th January 1996 for the construction of a commercial building. A charge dated 10th September 1996 was duly executed and registered in favour of the Defendant. Interest payable on the loan was at 30% p.a. with monthly installments of Kshs. 250,000.00 with effect from 31st January 1997. The balance was to be paid in lump sum at the expiry of the loan period which was stipulated to be 31st January 2000.
A letter dated 2nd February 2000 renewed the plaintiff’s facility by advancing Kshs. 8,000,000.00 at an interest of 24% p.a. for a period of 4years with monthly installments of Kshs. 250,000.00 expiring on 31st December 2003 the security was the legal charge and guarantees of the directors of the plaintiff, Mr Joginder Singh Sokhi and Mrs Jit Kaur Sokhi for Kshs. 8,000,000.00 each.
The plaintiff’s gravamen are that;
•    The interest rate of 30% was contrary to the provisions of the Central Bank of Kenya(Amendment) Act 2000 and Legal Notice No. 1458 of 1990
•    That the Defendants purported to give a null and void statutory notices of sale of the property claiming an alleged outstanding sum of Kshs. 2,629,379/35 as at 31st December 2006
•    Throughout the loan period the defendant had continued to debit the plaintiff’s account with illegal and unjustified interests, interest on arrears and other charges. It was stated that IRAC was appointed to compare interest charged and those ought to have been charged and it emerged that the plaintiff was overcharged a sum of Kshs. 6,657,920.10 due to the claim that the defendant acted unlawfully and in breach of contractual duties and obligations.
Judgment by A. Mabeya Judge.
•    Section 39 of the central Bank of Kenya Act CAP 291 gave the minister of finance in consultation with the central bank of Kenya power to fix the maximum and minimum rates of interest chargeable or payable for deposits and loans. According to the judge the section was only permissive and not mandatory that an interest control regime be maintained. Therefore the rate of 30% and later on 24% agreed between the parties was valid and contractual.
Was valid and contractual.
•    The judge didn’t see the need to order the taking of accounts even though there was admission and evidence of charges levied not part of interest that where in contravention of S44 of the Central Bank of Kenya Act. There was an amount due to the defendant together with the contractual interest. Upon payment the plaintiff’s title would be released.
The judge found that the plaintiff had not proved his case to the required standard.


Case Summary
The Plaintiffs initially borrowed Kshs. 697,500.00 and after paying off Kshs. 3,011,684.25, Housing Finance later served them with a notice of sale of the security to realize Kshs. 2,523,247.00. Suspecting irregularities in the conduct of the account, they approached IRAC to have their accounts scruitnised after which they moved to court to challenge the notice of auction issued by HF on grounds that:

The statutory notice issued was extinguished by a further agreement to reschedule the mortgage entered into between them and HF. Further, they contended that having borrowed Kshs.697,500.00 initially, they had so far paid Kshs. 3,011,684.25 which was about 5 times of the amount borrowed, yet, the balance continued escalating.
They further contended that the huge balance was as a result of illegal and uncontractual penalty, interest and default charges imposed by the defendant. The Penalties therefore acted as a fetter or clog to the borrowers’ equity of redemption.

It was therefore the Plaintiffs’ case that their mortgage account had been illegally and improperly handled by the Defendant.

HF did not provide evidence to the contrary and in fact admitted having levied penalty contrary to the charge document but indicated that they were “properly levied in accordance with implied terms, prevailing customs and trade usage in the mortgage, Banking and Financial Industry.”

Warsame J ruled that such an act outside the contractual agreement had no legal basis. Further, the defendant’s contention that it could compensate the Plaintiff in damages was rejected as the Court said that ability to pay damages is not always a substitute for the grant of injunction.

The court found that since prima facie(on the face of it) the defendant did not follow the central document, it cannot be allowed to sell the suit property just because it has the power and muscle to repay any damages that may eventually be decreed. Such a situation would be contrary to the principles of equity. The learned Judge stated “The acts of the defendant in my view amounts to muddling the waters that were for the benefit of all parties. This court cannot force the Plaintiffs to drink from a well muddled by the hands and legs of the defendant. To do so would be inequitable”.


This is a major case and finding against Housing Finance Company of Kenya that all ‘penalty’ interest and ‘default charges’ it has ever charged citing “implied banking custom and usage” are illegal. It is up to mortgagors, both existing and even those who have completed servicing their mortgages, to make claims for refund for overcharged interest. IRAC is currently coordinating a class-action lawsuit against the Housing Finance Company of Kenya.