Ochieng v Chuna Sacco D.T. Limited [2025] KECPT 281 (KLR)

Ochieng v Chuna Sacco D.T. Limited (Tribunal Case E765 of 2024) [2025] KECPT 281 (KLR) (5 May 2025) (Judgment)

Neutral citation: [2025] KECPT 281 (KLR)

Republic of Kenya

In the Cooperative Tribunal

Tribunal Case E765 of 2024

BM Kimemia, Chair, Janet Mwatsama, Vice Chair, B Sawe, F Lotuiya, P. Gichuki, M Chesikaw & PO Aol, Members

May 5, 2025

Between

Duncan Elly Ochieng

Claimant

and

Chuna Sacco D.T. Limited

Respondent

Judgment

1. The Claimant is a member of the Respondent Society member number 14389 since 2020 and was elected as a board member of the Respondent Society in March 2024.

2. On diverse dates between the year 2020 when he joined as a member and February 2024, the Claimant guaranteed loans for eight members of the Respondent as per the society by laws and in December 2023, the Claimant applied for a loan which was approved of Kshs. 3,416,900/= to be paid over a period of 36 months.

3. According to the Claimant, he has been diligently and dutifully repaying his loan with interest as per the said agreement. However, some members he guaranteed defaulted on their loans and in the months of September and October 2024, the Respondent prioritized and used the Claimant's funds totaling to Kshs. 99,872. 50/= to repay the loans of the members he had guaranteed at the expense of servicing his loan, a result of which the Claimant has been rendered a defaulter.

4. It is the Claimant's position that the very act of prioritizing loan defaulters and using the Claimants funds to clear defaulters' loans as opposed to using the Claimant’s funds deducted from his salary to service his loan, has unprocedurally and illegally rendered him a loan defaulter with the net effect that now the Claimant has been listed as a defaulter of his loan and risks being removed from his position as a board member of the society.

5. It is the Claimant's position that the Respondent's actions are without any justification or color of rights, are a breach of the society's credit policy by laws and cooperative society laws, and has given him bad credit rating which puts his position as a board member at risk and will deny him access to any future credit from any financial institution.

6. That despite the demand and a notice to rectify the anomaly, the Respondent has failed, refused or neglected to prioritize the Claimant’s loan repayment, therefore necessitating the filing of this Statement of Claim dated 6th October 2024 praying for judgment against the respondent for:a.A permanent order restraining the Respondent either by itself, servants or agents from allocating the Claimant’s funds and prioritizing repayment of interest on 3rd party defaulters before repayment of the Claimant's principal loan and interest.b.A permanent order restraining the Respondent either by itself, servants or agents from discussing or conducting any disciplinary proceedings and or removal of the Claimants as a board member of the Respondent based on the default of loan repayment caused by prioritizing interest of loans defaulters guaranteed by the Claimant and not the Claimant’s loan repayment on principal amount and interest.c.An order directing the respondent to transfer the Claimant's funds used to repay Interest on defaulters loans to repay the principal loan and interest for the Claimant.

7. On 19th February 2025, the Respondent filed their Statement of Defence stating among others:i.That the guarantor-ship was done outside the Sacco by-laws and credit policyii.That should the Claimant be in bad credit rating as alleged, then he is the author of his own misfortunes for having failed to meet his loan obligations.iii.That as per the Sacco policy, the Claimant is not only required to service his own personal loans but also to service any outstanding interest on loans for defaulters where he has voluntarily stood in as a guarantor.iv.That the Claimant was not coerced to stand in for any member as a guarantor and therefore understood the implications of default by the guaranteed members in line with section. 3. 9 (d) of the Respondent's credit policy and procedure manual which reads:“If a default continues for the third month (that is 90 days) the defaulter and the guarantors shall be informed that the loans is recoverable from them and that the recovery shall be effected.”v.That the Respondent was therefore acting within their policy and within the law when deducting the amounts.vi.That the Respondent acted within its policy to deduct the monies aforesaid with no further reference to the Claimant once the defaulters did not make good their default, and the Claimant is not entitled to recover the said amounts in line with clause 3. 9 (g) that reads:“Guarantors shall not be refunded any monies recovered from them as long as the loan remains unpaid to the full unless the defaulter repays all the arrears and any charges accrued thereon.”vii.That then listing of the claimant as a defaulter was done as per the credit policy. Add clause 3. 91. Which reads:“The Society shall register the defaulter with CRB as required by law.”

8. On 25th January 2025, the board of directors of the Respondent Sacco held a board meeting and deliberated on the fitness of the Claimant to discharge his functions as a director and a member of the credit sub-committee and addressed two issues which included the filing of this case by the Claimant, and the failure by the Claimant to fulfil his loan obligations. The board suspended the Claimant for the two serious breaches, a result of which the Claimant filed two Applications to have his suspension addressed.

9. This Tribunal gave directions for the Applications filed to be heard together with the main claim on the basis that the prayers sought in the Applications by the Claimant were the substantive prayers sought in the main claim.

10. At trial, the Claimant stated the following:i.That the areas of concern are two-fold, first, that the Respondent is prioritizing the payment of defaulters' loans over his personal loan, and second, that the board subsequently took a decision to suspend and expel him as a delegate of the Sacco for loan default as a result of their own prioritization.ii.That some of the loans that he guaranteed, were awarded irregularly and not in compliance with the loan policy of not awarding a loan of more than Kshs. 6,000,000/= without collateraliii.That the Respondent officials did not do due diligence before awarding some of the loans he guaranteediv.That it was unprocedural for the Respondent to return collateral when there is default of a loanv.That filing a case at the Tribunal is not conflict of interest, and as such cannot amount to a good cause or the basis of suspension and dismissal.vi.That the prioritization of using a member's deducted salary to pay defaulters loans at the expense of that member's personal loan is unlawful and not supported by any Sacco by-law or industry practice.vii.That his expulsion is unlawful and procedural.

11. At trial, the Respondent who was represented by their Internal Auditor Joshua Tanui stated the following:i.That the decision to prioritize defaulters loans over the Claimant’s loan was made by the board.ii.That the prioritization of defaulters loans over a member’s personal loan is not reflected in the credit policy, but has always been the practiceiii.That there was no malice in the suspension of the Claimant, he was suspended for the breaches noted in his letter of suspension – mainly being in default of servicing his loan.iv.That no member is forced to guarantee any other member, and as such, the Claimant willingly and voluntarily guaranteed the loan defaulters.

12. The parties closed their cases and were given directions to file and serve their submissions, with a mention date for judgement set on 13th May, 2025.

13. The Claimant filed his submissions dated 25th March, 2025 stating among others:i.That the prioritization of repayment of interest on 3rd party defaulters loan before repayment of the Claimant’s principal loan and interest by the Respondent was unlawful.ii.That no notices were issued to either the loan defaulters or the Claimant as a guarantor as per clause 3. 9 of the Respondent's credit policy.iii.That the Claimant only learnt upon receiving his payslip for the month of September, 2024 that money had been deducted from his salary and used to repay the interest of the persons he had guaranteed before repayment of his principal loan and interest.iv.That the default in loan repayment by the Claimant was as a result of illegal actions of the Respondent.v.That the failure to use the Claimant’s funds to repay his principal loan and interest first was entirely the fault of the Respondent.vi.That the Respondent without adhering to any known policy, by-laws, cooperative laws or regulations, prioritized the repayment of defaulters' loans consequently making the Claimant default on his loan.vii.That the subsequent actions of the Respondent, including suspending the Claimant as a board of director and delegate based on default of the loan which is solely by illegal acts of the Respondent are unprocedural, null and void.

14. The Respondents on their part filed their written submissions dated 15th April, 2025 stating among others:i.That the unconscionability of the credit policy and practice is not an issue for determination before the Tribunal.ii.That while guaranteeing the members, the Claimant was well aware of the Respondent’s practice and policy and the consequences that arise from defaulting members.iii.That the Respondent was not in breach of any laws, by laws or their credit policy for deducting the defaulters interest from the Claimant’s salary.iv.That it is the Sacco’s policy that the Claimant is expected to service any outstanding interest on loans for defaulters where he has voluntarily stood in as guarantor.v.That the Claimant is not entitled to any refund.

15. The Claimant later filed an Application under certificate of urgency stating that the Respondent has called for a delegates meeting on 25th April, 2025 and has declared the Claimant’s position as vacant. This necessitated the Tribunal in the interest of justice to revise the judgement date to 24th April, 2025.

16. Issues for determinationI.Is filing a case at the Cooperative Tribunal a good cause for suspending and expelling a member?II.Should deductions from a member be prioritized in paying a defaulter’s loan at the expense of servicing that members loan?III.Is the Claimant in default of paying his loan?

Is filing a case at the Cooperative Tribunal a good cause for suspending and expelling a member? 17. The beginning point is to state, for the avoidance of doubt, that the Kenyan Constitution at Article 22 (1) guarantees parties the right to file cases in any court in Kenya, the Co-operative Tribunal included, in the event of their rights being threatened or violated. It states:“.…22 (1) Every person has the right to institute court proceedings claiming that a right or fundamental freedom in the Bill of Rights has been denied, violated or infringed, or is threatened..”

18. Section 7(1) of the Fair Administrative Action Act also provides that:“Any person who is aggrieved by an administrative action or decision may apply for review of the administrative action or decision to -A court in accordance with section 8; orA tribunal in exercise of its jurisdiction conferred in that regards under any written law…”

19. In Oucho v Joseph Otieno Bee , Chief Executive Officer Bandari Sacco Ltd & 12 others; Sacco Society Regulatory Authority (SASRA) (Interested party) (Constitutional Petition 57 of 2021) [2022] KEHC 6 (KLR) (25 January 2022) (Ruling), it was stated that:“.….Our constitution recognizes a duty to accord a person procedural fairness or natural justice when a decision is made that affects a person’s rights, interests or legitimate expectations. All that an Applicant is required to do is to demonstrate that the impugned decision violates or threatens to violate the Bill of Rights or violation of the Constitution….”

20. From the facts of this case, it is clear that the Respondent society board made an administrative decision to deduct the Claimant’s salary and prioritize the payment of defaulters loans at the expense of servicing the Claimants loan, an act that the Claimant viewed as unfair but the board was not willing to review, leaving the Claimant with only one option - to seek redress in a court of law.

21. Given that the right to access a court of law is a constitutional right, it is our considered position that it can’t be limited by a Sacco by-law for two reasons. First, the hierarchy of laws on where Sacco by-laws stand in relation to the Constitution - the Constitution is the supreme law of the land, and second, Saccos are themselves a creation of the law, and as such must follow the law in the administrative decisions and or actions they make.

22. As such, it is our finding that there was no conflict of interest in the actions of the Claimant to file a case to protect his rights from violation, and his actions by filing the case cannot be construed as a good cause for suspension and or expulsion.

Should deductions from a member be prioritized in paying a defaulter’s loan at the expense of servicing that members loan? 23. The beginning point in finding an answer to this question, is to start with the known. First, we have looked at all the documents (by-laws and policies) made available to this Tribunal in the course of this trial, and neither has given us the clear order of prioritization in black-letters.

24. Second, it is settled law that the party who claims or alleges that something exists, is the one with the onus of showing the court where what they are alleging exists. In this particular case, it is the Respondent who claims that their Sacco loan recovery policy clearly outlines the order of prioritization by first ensuring that you recover a defaulter’s loan from a guarantor before deducting what that guarantor also owes the Sacco in relation to their personal loan - to mean, it’s the Respondent to direct this Tribunal where that by-law or policy is.

25. They haven't done that, and that in essence mean that their decision on prioritization was an administrative action not backed by any black letter by-law or policy.

26. Article 47 of the Constitution require that actions made by institutions should be lawful, reasonable and procedurally fair. To mean, the very action of deducting the Claimant’s salary and using the same to first settle a defaulter’s loan at the expense of the Claimant’s loan should be evaluated along the lens of whether such an action is lawful, reasonable and procedurally fair.

27. Section 4 (3) of the Fair Administrative Action Act goes even further to state that:“.….. where an administrative action is likely to have an adverse effect on the rights and fundamental freedoms of any person, that person should be given:-a.Prior and adequate notice of the nature and reasons for the proposed administrative action;b.An opportunity to be heard and to make representations in that regard;c.Notice of a right to review or internal appeal against an administrative decision, where applicable;d.A statement of reasons pursuant to section 6….”

28. In this particular case, it is our finding that the administrative action of the Respondent in prioritizing the use of the Claimant’s salary to first settle defaulters loans at the expense of servicing the Claimant’s loan, had adverse effects on him, as the same lead to the Claimant being declared to be in default. It is our considered position that such a prioritization is unprocedural, unreasonable and unfair and shouldn't be allowed to stand, especially when it is clear that the Claimant was not given any prior and adequate notice of the likeliness of such actions, was never given an opportunity to make representations in that regard, and was never given an internal appeal mechanism.

29. We also find it curiously strange that the Respondents in their Statement of Defense, admit that some of the guarantor-ships were done outside the Sacco by-laws and credit policies. Which begs the question, between the Claimant and the Respondent, who had the last say as to whether a guarantor-ship is done outside the Sacco by-laws and credit policy? Who approves guarantor-ship? Who does the background checks and due diligence between the Claimant and the Respondent before a loan is approved?

30. In Atemba & 4 others v Trans-National Times Sacco Society Limited & another (Tribunal Case 251 of 2021) [2024] KECPT 974 (KLR) (30 May 2024) (Judgment), this Tribunal restated and made it clear that on a case to case basis, as a Tribunal:“…..we will look at the circumstances leading to the deductions of a guarantor……… and a guarantor cannot be deemed to carry a burden because of the Respondent’s non-vigilance or indolent actions…”

31. Our position as a Tribunal over the years has remained consistent on the role of guarantors in loan transactions - they play a secondary role. The loan belongs to the loanee and not the guarantor, and it is the duty of the party approving the loan (in this case the Respondent) to ensure that they have put enough safeguards to recover the loan upon default. As a Tribunal, we don’t find it procedurally fair and reasonable that the Respondent gave back the collateral or never charged it as security, and once that party is now in default, they want to have an easy go at guarantors. The Respondent did not even try to identify an alternative asset to recover from the loanee before going for the guarantors.

Is the Claimant in default of paying his loan? 32. The starting point is to state that loan agreements are legally binding contracts that have the details of the terms clearly spelt out. The details of those terms include but not limited to:i.Principal amount borrowed or disbursedii.The interest rate chargediii.The payment scheduleiv.Mode of paymentv.Collateral (if applicable)

33. Terms of a loan contract remain the terms of that loan agreement unless either the parties agree to vary or set them aside, or a court invalidates them as a result of fraud, duress, or undue influence, or the terms being unfair and unconscionable. Lord Dening in Lole –v- Butcher (1949) All E.R 1107 makes it clear that:“Once a contract has been made, that is to say once parties, whatever their innermost state of mind have to all outward appearances agreed with sufficiently contains in the same terms on the same subject matter, then the contract is good unless and until it is set aside for breach of some conditions or implied in it or for fraud or on some equitable ground…..”

33. This Tribunal has scrutinized the details of the loan agreement that the Respondent alleges the Claimant has defaulted on, and note the following:a.Principal amount borrowed or disbursed was Kshs. 3,416,900/=b.The interest rate charged was at 1. 35% per month on reducing balancec.The payment schedule was for 36 monthsd.Mode of payment was through salary check-off

34. Given that the loan was to be payed through check-off, which was the understanding as at the time of disbursing the loan, it is our considered position as a Tribunal that as long as the Claimant is still in employment and his salary is still being deducted monthly, he has complied to the terms of the loan facility of Kshs. 3,416,900/=

35. To be in default of a loan payment, a party has to fail to service their loan through their own action - not through the prioritization of what has been deducted by another party. The Respondent’s action of deducting the Claimant’s salary to settle defaulters loans as a priority resulted in “mora accipiendi,” the Respondent refusing to accept what is owed to them by the Claimant - it is the Respondent making it impossible for the Claimant to fulfill his obligation under the loan agreement.

36. Logically, it is and it will be impossible to find the Claimant to be in default of this said loan of Kshs. 3,416,900/= as long as money is still being deducted from his salary every month through check-off without a break.Final Orders:1. The Statement of Claim dated 6th October 2024 is merited succeeds and judgment is entered in favor of the Claimant as prayed with costs.2. The Respondent either by itself, servants or agents are restrained from allocating the Claimant’s funds and prioritizing repayment of interest on 3rd party defaulters before repayment of the Claimant's principal loan and interest.3. The disciplinary proceedings and or removal of the Claimant as a board member of the Respondent based on the default of loan repayment caused by prioritizing interest of loans defaulters guaranteed by the Claimant and not the Claimant’s loan repayment on principal amount and interest is quashed and the Claimant resumes his position as a delegate and as a director in the board with full rights as other board members.4. The Respondent is ordered to transfer the Claimant's funds used to repay Interest on defaulters loans to repay the Claimant’s principal loan and interest thereon.

JUDGMENT SIGNED, DATED AND DELIVERED VIRTUALLY AT NAIROBI THIS 5TH DAY OF MAY, 2025. HON. B. KIMEMIA - CHAIRPERSON SIGNED 5. 5.2025HON. J. MWATSAMA - DEPUTY CHAIRPERSON SIGNED 5. 5.2025HON. BEATRICE SAWE - MEMBER SIGNED 5. 5.2025HON. FRIDAH LOTUIYA - MEMBER SIGNED 5. 5.2025HON. PHILIP GICHUKI - MEMBER SIGNED 5. 5.2025HON. MICHAEL CHESIKAW - MEMBER SIGNED 5. 5.2025HON. P. AOL - MEMBER SIGNED 5. 5.2025Tribunal Clerk MutaiMs. Obura advocate holding brief for Mr. Seko for the Claimant.Ms. Kariuki advocate for the RespondentMs. Kariuki advocate – We pray for 21 days stay of execution.Ms. Obura advocate- No objectionTribunal orders21 days stay of execution granted.