Mwalimu National Savings & Credit Co-operative Society Ltd v Kimeu & 8 others [2025] KEHC 621 (KLR)

Mwalimu National Savings & Credit Co-operative Society Ltd v Kimeu & 8 others (Civil Appeal E218 of 2021) [2025] KEHC 621 (KLR) (Civ) (23 January 2025) (Judgment)

Neutral citation: [2025] KEHC 621 (KLR)

Republic of Kenya

In the High Court at Nairobi (Milimani Law Courts)

Civil

Civil Appeal E218 of 2021

LP Kassan, J

January 23, 2025

Between

Mwalimu National Savings & Credit Co-operative Society Ltd

Appellant

and

Benjamin Kimeu

1st Respondent

William Chenjo

2nd Respondent

Henry Muchura

3rd Respondent

Monica Kinyua

4th Respondent

Geoffrey M’Inoti

5th Respondent

Margaret Mwaura

6th Respondent

Gerald Kariuki

7th Respondent

Esther Njue

8th Respondent

Lawrence Gitira Nyaga

9th Respondent

(Being an appeal from the Judgment and Decree of the Co-operative Tribunal at Nairobi delivered on 25th March, 2021 in CTC No. 521 of 2013)

Judgment

1. This appeal emanates from the judgment and decree delivered by the Co-operative Tribunal (hereafter the Tribunal) on 25. 03. 2021 in CTC No. 521 of 2013. The proceedings before the Tribunal were commenced by way of a statement of claim filed by Benjamin Kimeu, William Chenjo, Henry Muchura, Monica Kinyua, Geoffrey M’inoti, Margaret Mwaura, Gerald Kariuki and Esther Njue the claimants before the Tribunal (hereafter the 1st to 8th Respondent) against Mwalimu National Savings & Credit Co-operative Society Ltd, the 1st respondent before Tribunal (hereafter the Appellant) and Lawrence Gitira Nyaga, the 2nd respondent before the Tribunal (hereafter the 9th Respondent) seeking a permanent injunction restraining the Appellant whether by itself or its servants and or agents from receiving and or deducting monies from the 1st to 8th Respondents salaries towards payment of the loan sum advanced to the 9th Respondent or attaching 1st to 8th Respondents shares; a permanent mandatory injunction directed at the Appellant to return to the 1st to 8th Respondents all sums attached in form of shares or salaries on account of the alleged guarantee of the sums advanced to the 9th Respondent; and costs of the claim plus interest.

2. It was averred that at all material times, the 1st to 8th Respondent were members of the Appellant’s Sacco and that they were purportedly guarantors of the 9th Respondent wherein between February 2010 and November 2011, the Appellant advanced to the 9th Respondent a total sum of Kshs. 6,552,000/-. It was further averred that the sum of Kshs. 6,552,000/- was advanced to the 9th Respondent by the Appellant on the basis of fraud, collusion or negligence on the part of the Appellant to wit the 9th Respondent defaulted in loan repayments. That in purporting to realize the guarantee, the Appellant attached the 1st to 8th Respondents share and in addition deducted sums from the forestated salaries towards recovery of the loan sum advanced to the 9th Respondent and in other instances, the 1st to 8th Respondents employer has remitted the said salary deductions to the Appellant. It was averred that the Appellant illegally and unlawfully attached the 1st to 8th Respondents respective shares and salaries therefore unless restrained by way of an injunction, the 1st to 8th Respondents shall suffer irreparable loss and damage for they shall be deprived of their salaries.

3. The Appellant filed response dated 27. 11. 2013 to the statement of claim admitting selective facets of the claim however denied the key averments in the claim. It was averred that upon default of the loan repayments by the principal debtor, the 9th Respondent, the Appellant rights to invoke and enforce the guarantee instrument crystallized culminating into the attachment and recovery of the loan amounts from the respective guarantors, the 1st to 8th Respondent herein. That the recovery process was fair, justified and within both the legal and contractual parameters.

4. The 9th Respondent on his part filed a response to the 1st to 8th Respondent’s claim meanwhile lodged a cross-claim against the Appellant.

5. The suit proceeded to full hearing during which the 1st to 8th Respondent and Appellant called evidence in support of the averments in their respective pleadings. In its judgment, the tribunal found that the 1st to 8th Respondent had established a case on a balance of probabilities and proceeded to enter judgment against the Appellant and 9th Respondent to the effect that: - the 1st to 8th Respondent are liable to the Appellant to the extent of their guaranteed sum to the 9th Respondent as follows; 1st loan – Kshs. 500,000/-, 2nd loan – Kshs. 140,000/-, 3rd loan – Kshs. 100,000/-, 4th loan – Kshs. 300,000/-; a permanent injunction issued restraining the Appellant whether by itself, servant and or agents from deducting any sum from the 1st to 8th Respondent salaries towards the loan payment for the 9th Respondent; an order that the Appellant to refund the 1st to 8th Respondent all sums attached in form of shares or salaries on account over and above the loans stated above; and the Appellant and 9th Respondent to pay costs of the suit with interest.

6. Aggrieved with the outcome, the Appellant preferred the instant appeal challenging the tribunal’s decision on nine (9) ground itemized in its memorandum of appeal.

7. The appeal was canvassed by way of written submissions of which the Court has duly considered alongside the authorities cited in support of the submissions.

8. That said, alongside the forestated, the Court has considered the record of appeal. This is a first appeal. The Court of Appeal for East Africa set out the duty of the first appellate court in Selle v Associated Motor Boat Co. [1968] EA 123. It is further settled that an appellate Court will not ordinarily interfere with a finding of fact made by a trial Court unless such finding was based on no evidence, or it is demonstrated that the Court below acted on wrong principles in arriving at the finding it did. See Ephantus Mwangi & Another vs Duncan Mwangi Wambugu [1982 – 1988] 1 KAR 278. Thus, upon review of the memorandum of appeal and submissions by the respective parties, it is the Court’s view that the appeal turns on whether the tribunal’s finding on the issues it identified for determination were well founded and justified.

9. Pertinent to the determination of issues before this Court are the pleadings, which form the basis of the parties’ respective cases before the tribunal and are relevant before dealing with evidentiary matters. In Wareham t/a A.F. Wareham & 2 Others v Kenya Post Office Savings Bank [2004] 2 KLR 91, the Court of Appeal stated in this regard that: -“We have carefully considered the judgment of the superior court, the grounds of appeal raised against it and the submissions before us on those matters. Having done so we are impelled to state unequivocally that in our adversarial system of litigation, cases are tried and determined on the basis of the pleadings made and the issues of fact or law framed by the parties or Court on the basis of those pleadings pursuant to the provisions of Order XIV of the Civil Procedure Rules. And the burden of proof is on the Plaintiff and the degree thereof is on a balance of probabilities. In discharging that burden, the only evidence to be adduced is evidence of existence or non-existence of the facts in issue or facts relevant to the issue. It follows from those principles that only evidence of facts pleaded is to be admitted and if the evidence does not support the facts pleaded, the party with the burden of proof should fail.” (Emphasis added).

10. This Court having earlier captured the gist of the respective parties’ pleadings, it serves no purpose restating the same at this juncture. Nevertheless, the gravamen of the Appellant’s contention before this Court is that the Tribunal’s finding went against the weight of evidence before it, in arriving at the conclusion that the 1st to 8th Respondent had established their claim on a balance of probabilities. The tribunal after restating and analyzing the evidence before it held as follows in its judgment; -“It is important to note that the 2nd Respondent did not participate in the proceedings or give evidence despite him filing a statement of defence and counterclaim.The issues arising from the case herein are: -a.Whether the claimants were guarantors for the 2nd Respondent in the loans he took from the 1st Respondent;b.Whether the claimant proved their case against the 1st and 2nd Respondents to warrant orders for permanent injunction as per their prayers in the statement of claim;c.Was there fraud by the 2nd Respondent and what is the effect of the same; andd.Were the 1st Respondent negligent in issuing the loans to the 2nd Respondent.Issue No. 1The claimants can only be held responsible for loans up to the amounts they guaranteed the 2nd Respondent of which he has defaulted.………The loan of Kshs. 2,287,000/- should never have been advanced and or approved by the 1st Respondent. The anomalies and omissions therein are glaring. Thus these claimants should not be held responsible for this loan amount but for the loan upto Kshs. 500,000/- as stated by the claimant.………We find that the Respondents were not diligent in processing the said loans. The amounts in words and figure are further grossly different as document Page 61 of claimants’ documents.To this as the claimant testified he guaranteed Kshs. 100,000/- for this loan and not Kshs. 2,029,000/-Issue No. 2…..The 2nd Respondent loan issued to him in February 2010 of Kshs. 2,285,000/- Vision Loan.We note that the application form – document Number was not filled properly contrary to the provisions of the Sacco by laws and or regulations.The members agree with the claimants’ submissions that the form sought not to have been dispatched to the 2nd Respondent or even approved. At the time of taking the said loan the 2nd Respondent failed to disclose he had 3 other existing loans….Issue No.3The documents produced by the claimants’ as evidenced show glaring irregularities. Page 5 and 7 of the claimants bundle of documents confirm there was forgery involved by the 2nd Respondents as the two (2) letters are different and the contents therein.Issue No. 4It is common knowledge when it comes to deductions for salaries persons one cannot have deduction of more than 2/3rds of their salary.The 1st Respondent was negligent in having the same deducted from the 2nd Respondent contrary to the Employment Act. Evidence as per payslip in page 10 of the claimant’s bundle.The claimant further evidence of the loan bringing form which is attached at page 9 of the claimants’ bundle of documents was also not complete to show existing loans and new amounts being sought for.The 1st Respondent was negligent on their responsibility to ensure the documents being presented to them are authentic and cannot seem to pass the blame on the Claimants’The claimants only came to find out act of the negligence of the 1st Respondent when their savings were deducted and as such can not be blamed for agreeing to sign for the 2nd Respondent who used documents that were forged.UpshotWe find that the claimants have established the case on a balance of probability and proceed to enter judgment against the 1st and 2nd Respondent.” (sic)

11. The applicable law as to the burden of proof is found in Section 107, 108 and 109 of the Evidence Act with the standard of proof in civil liability claims in our jurisdiction being reasonably discussed by the Court of Appeal in Mumbi M'Nabea v David M.Wachira [2016] eKLR and Palace Investment Ltd v Geoffrey Kariuki Mwenda & Another [2015] eKLR. However, it is trite that the duty of proving the averments contained in the statement of claim lay squarely with the 1st to 8th Respondent whereas the averments contained in the Appellant’s response, lay on it. In Karugi & Another v Kabiya & 3 Others (1987) KLR 347 the Court of Appeal stated that; -“[T]he burdens on a plaintiff to prove his case remains the same throughout the case even though that burden may become easier to discharge where the matter is not validly defended and that the burden of proof is in no way lessened because the case is heard by way of formal proof. We would therefore venture to suggest that before the trial court can conclude that the plaintiff’s case is not controverted or is proved on a balance of probabilities by reason of the defendants’ failure to call evidence, the court must be satisfied that the plaintiff has adduced some credible and believable evidence, which can stand in the absence of rebuttal evidence by the defendant…--. The plaintiff must adduce evidence which, in the absence of rebuttal evidence by the defendant convinces the court that on a balance of probabilities it proves the claim.”

12. On the part of the 1st to 8th Respondent, the 1st Respondent testified as CW1. He adopted his witness statement as his evidence in chief meanwhile relied on bundle of documents in the list of documents, in support of the claim. The Appellant equally called one (1) witness, Charles Karanja, who testified as RW1. He too adopted his witness statement as his evidence in chief and adduced into evidence the list of documents filed on 23. 03. 2017 as RExh.1 and the one filed on 02. 11. 2018 as RExh.2. From both witness statements and evidence before the trial Court it is undisputed that the 1st to 8th Respondents were guarantors to facilities taken ought by the 9th Respondent, from the Appellant. The bone of contestation relates to the specific amounts guaranteed, of which the 1st and 8th Respondent assert that the 9th Respondent obtained the facilities by way of fraud and collusion on the latter’s part and negligence on the part of the Appellant. Specifically, the 1st to 8th Respondent itemized the particulars of fraud, collusion and negligence at paragraph 6 of the statement of claim.

13. The 1st to 8th Respondent’s quintessentially contended that they were only liable to the tune of Kshs. 500,000/- and not liable for the amount of Kshs. 2,287,000. 00 out of the Kshs. 2,500,000. 00; liable to the tune of Kshs. 100,000/- and not liable for Kshs. 2,029,000. 00 with regard to the loan of Kshs. 2,100,000. 00; liable to the tune of Kshs. 100,000/- and not liable for Kshs. 796,000/- which were all approved and advanced to the 9th Respondent. That the loan application forms that they had executed as guarantors were forged to increase the loan guaranteed contrary to what was signed by the guarantors whereas the 9th Respondent was completely ineligible to borrow or obtain a further advance on the loans on accord of having not cleared his earlier loans. That on accord of the forestated, anything founded on an illegality is itself illegal and a party cannot benefit from an illegality, let alone its own illegality. It was further argued that the Appellant by advancing the loans to the 9th Respondent flouted its own rules and regulations governing the disbursement of loans.

14. The kernel of the Appellant’s contestation is that the 1st to 8th Respondent were guarantors to the facilities advanced to the 9th Respondent whereupon default by the latter, they were entitled to proceed with the recovery from the guarantors. That there was no fraud or misrepresentation in issuing the loan facilities applied for by the 9th Respondent, on the part of the Appellant, for the reasons that fraud alleged by the 1st to 8th Respondent was not proved. It was further contended that in the grand scheme of the issues, allegations of fraud as alleged by the 1st to 8th Respondent were baseless noting that no report was made to the police and the Appellant had not been charged with any criminal offence.

15. With the above in reserve, as earlier noted, the 1st to 8th Respondents claim was fundamentally founded on fraud. The applicable test of proving fraud in civil cases is well settled. Tunoi JA (as he then was), in Vijay Morjaria vs Nan Singh Madhu Singh Darbar & Another [2000] eKLR stated that; -“It is well established that fraud must be specifically pleaded and that particulars of the fraud alleged must be stated on the face of the pleading. The acts alleged to be fraudulent must, of course, be set out, and then it should be stated that these acts were done fraudulently. It is also settled law that fraudulent conduct must be distinctly alleged and distinctly proved, and it is not allowable to leave fraud to be inferred from the facts.”-

16. The standard of proof in respect of the issue is higher. The Court of Appeal in Kinyanjui Kamau vs George Kamau [2015] eKLR expressed itself as follows; -“…It is trite law that any allegations of fraud must be pleaded and strictly proved. See Ndolo vs Ndolo (2008) 1 KLR (G & F) 742 wherein the Court stated that:“...We start by saying that it was the respondent who was alleging that the will was a forgery and the burden to prove that allegation lay squarely on him. Since the respondent was making a serious charge of forgery or fraud, the standard of proof required of him was obviously higher than that required in ordinary civil cases, namely proof upon a balance of probabilities; In cases where fraud is alleged, it is not enough to simply infer fraud from the facts."

17. In Virani t/a Kisumu Beach Resort v Phoenix of East Africa Assurance Company Ltd [2004] eKLR, the same Court held that: -“Fraud is a serious quasi-criminal imputation, and it requires more than proof on a balance of probability though not beyond reasonable doubt”.

18. Here, the 1st and 8th Respondent relied on a raft of documents in its list of documents dated 03. 04. 2017 and 23. 01. 2018 respectively, which included among other documents; loan application forms, purportedly a genuine and a forged letter of appointment; genuine and a forged payslips. The said loan application forms which were at the heart of the dispute were equally relied on by the Appellant by way of RExh.1, which the former asserts that the applications to wit the loans were advanced were forged whereas the latter maintained that the same were genuine and duly guaranteed. It was particularly contended by the 1st to 8th Respondent, that upon the guarantors being presented with the loan application forms, the same had different and lower loan amounts to that of which were eventually approved by the Appellant. The letter of appointment was equally at the centre of the dispute, wherein one captured that the 9th Respondent was employed on a two (2) year contractual term with the other capturing that the 9th Respondent was employed on permanent term. The same contestation as to genuineness of the payslips was likewise advanced.

19. It is notable that at the hearing of the matter, it is only the 1st Respondent who testified on behalf of the 1st to 8th Respondent. There was no other witness who tendered evidence in respect of the contested documents and authenticity of the same notwithstanding the fact that the 1st to 8th Respondent suit was predicated on allegation of fraud and forgery of pertinent documents that led to advancement of the impugned facilities. The trial Court though correctly identifying the subject of fraud as an issue for determination did not address the question in depth. It only captured that the documents relied on by the claimant showed glaring irregularities notwithstanding the fact that the crux of the case was founded on fraud, collusion and or resultant negligence on the premise of the forestated. The tribunal’s supposition that there was forgery, in respect of the letter of appointment, was not based on any tangible and or reasonable evidence, in order to arrive at the said conclusion, that it did. Aside from the letter of appointment, there were other documents pertinent to the claim that the 1st to 8th Respondent purported were forgeries, of which the trial Court did not address itself on. It was imperative of the 1st to 8th Respondent to adduce cogent evidence either by calling the author of the said letter or pay slips to justify the allegation of fraud and forgery. As is, the trial Court conclusively arrived at the determination it did without any comparative analysis of evidence to impeach the authenticity of the purportedly forged letters or document. With respect to the loan application forms, the 1st to 8th Respondent’s evidence equally fell short of impeaching the same without relatable and cogent evidence on whether they were forged and or altered as purported by the 1st to 8th Respondent.

20. In the instant matter, to justify forgery, altering of documents and fraudulent representation of the loan application forms, it was pertinent that witnesses other than the 1st Respondent be availed to shore up the averments in the statement of claim. Here, the 1st to 8th Respondent opted to singularly rely on the 1st Respondent’s evidence without more whereas the trial Court appears to have failed to appreciate the 1st to 8th Respondent’s pleadings and the import of the evidence that ought to have been adduced and or relied on to demonstrate the averments in the pleadings. The Supreme Court in Gatirau Peter Munya v Dickson Mwenda Kithinji & 3 Others (2014) eKLR in considering the legal vis-à-vis the evidential burden held inter alia; -“The person who makes such allegation must lead evidence to prove the fact. She or he bears the initial legal burden of proof which she or he must discharge. The legal burden in this regard is not just a notion behind which any party can hide. It is a vital requirement of the law. On the other hand, the evidential burden is a shifting one, and is a requisite response to an already discharged initial burden. The evidential burden is the obligation to show, if called upon to do so, that there is sufficient evidence to raise an issue as to the existence or non-existence of a fact in issue”.

21. It must be remembered that it is not disputed that the 1st to 8th Respondent were guarantors to the 9th Respondent. What is in dispute is the fraudulent manner in which the 9th Respondent obtained facilities from the Appellant, with the 1st to 8th Respondent as guarantors. This despite the other issues emanating therefore. Thus, without substantiating the allegations of fraud it is difficult to see how collusion or negligence between the Appellant and the 9th Respondent would be illuminated without cogent evidence to justify the same, to wit, the tribunal’s decision must be faulted. Despite having a clear delineation of what the issues in controversy in the matter were, the trial Court seems not to have interrogated and or juxtaposed the same to the averments in the 1st to 8th Respondent’s pleadings and as a consequence arrived at an erroneous decision. Indubitably, the answer is that the 1st to 8th Respondent did not discharge their burden of proof as stipulated in Karugi (supra) and Kinyanjui (supra). It would be mindful, to note that the Court of Appeal in C O Okere v Esther Nduta Kiiyukia & 2 others [2019] eKLR while addressing the threshold of establishing fraud observed that “fraud is proved at a higher standard above balance of probabilities. To succeed, the appellant needed not only to plead and particularize fraud, but also a basis by way of evidence, upon which a trial court would make a finding.”

22. It is worth noting that the part where the guarantors are supposed to sign is in the same page with the amount guaranteed (both in words and figures). These documents were produced as exhibits meaning that there was no contestation on their authenticity and besides its likely that the originals were available. Now, for example if you look at the amount guaranteed of Ksh 250,0000, there is clearly no alteration on the figures and words. There is no erasure at all prompting a question on how possible alteration could have been made. One can argue that alteration would however have been possible because of recent technology to make alteration i.e. by whitewashing the figures and words and printing a copy which comes out without the figures then putting new figures in the printed copy and printing another one - but this cannot alter the original signed copy at all. On the issue of disparity on figures, we all know that not all applications are done perfectly. There could be a mistake here and there but that does not negate the actual issue; - that a certain amount was guaranteed.

23. On the issue of deduction beyond the two thirds, that has a remedy independent of the responsibilities of guarantor.

24. Under Section 107 of the Evidence Act, the burden of proof lay with the 1st to 8th Respondent and if their evidence did not support the facts pleaded, they failed as the party with the burden of proof. See the case of Wareham t/a A.F. Wareham (supra). In the circumstances, the trial Court’s decision ought to be set aside and substituted with an order dismissing the 1st to 8th Respondent’s claim with costs.

DELIVERED, DATED AND SIGNED AT NAIROBI THIS 23RDDAY OF JANUARY 2025. HON. L. KASSANJUDGEIn the presence of:Ngethe holding brief Ague for AppellantNyakoa holding brief Maino for RespondentGuyo - Court Assistant