Otieno & 2 others v Harambee Sacco Society Limited & another [2023] KECPT 823 (KLR)

Otieno & 2 others v Harambee Sacco Society Limited & another (Tribunal Case 422 of 2016) [2023] KECPT 823 (KLR) (31 August 2023) (Judgment)

Neutral citation: [2023] KECPT 823 (KLR)

Republic of Kenya

In the Cooperative Tribunal

Tribunal Case 422 of 2016

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

August 31, 2023

Between

Roy Evans Otieno & 2 others

Claimant

and

Harambee Sacco Society Limited & another

Respondent

Judgment

1. The case before us for Determination was brought to the Tribunal by the Claimant vide Statement of Claim dated 6th January 2016 and filed on 12th October 2016 and later amended on 17th May 2017. The same was accompanied by the Claimant’s list of witnesses dated 17th August 2018 and filed on 22nd August 2018. Authority to prosecute and sign documentation/plead dated 17th August 2018 filed on 22nd August 2018 and the witness statement dated 17th August 2018 signed by Roy Evans Otieno the 1st Claimant.

2. As per the Amended Statement of Claim; the Claimant claims:1. That they are members of the 1st Respondent and were members of the 1st Respondent at all times material to this Claim as well as employees of the Ministry of Trade.2. That in the year 2009, they agreed to guarantee the 2nd Respondent who was an employee of the Ministry of Trade and a member of the 1st Respondent a first loan of KSH 1,198. 452/= which was payable within five years(sixty months) at monthly installments of KSH 20,261/=3. That the Ministry of Trade deducted KSH 20,261/= from the 2nd Respondent's salary and remitted it to the 1st Respondent every month as per the 1st Respondent’s instructions until the loan was repaid in full in November 2014 thereby discharging the Claimants as guarantors from any responsibility.4. That on or about 6th May 2013 the 1st Respondent granted the 2nd Respondent another loan of KSH 429,715/= thereby confirming that the record Respondent’s earlier loan was not in arrears or default as the 1st Respondent by-laws and Sacco Registration do not allow members to run more than one development loan concurrently.5. That on or about January 205 when the 2nd Respondent retired from employment the first Respondent applied his shares to offset his later loan which was not in arrears or default as opposed to the earlier loan which would have taken priority if it had been in default or arrears.6. That since retirement, the 2nd Respondent has been carrying on the business of Real Estate and is fully capable of meeting his loan obligation towards the 1st Respondent.7. That in January 2016, the Claimant received messages from the 1st Respondent indicating that their salaries had been attached to the 2nd Respondent’s loan default following which the Ministry of Industry and Trade and Co-operatives commenced deductions of KSH 4,078,.00/= per month from the 1st and 2nd Claimants salaries to service the 2nd Respondnet’s purported default loan. In addition, deductions of KSH 3,825. 00/= per month from the third Claimant.8. That these deductions were carried out without any colour of right as there was no proper notice given before any deductions were done and the 2nd Respondent’s loan guaranteed by the Claimants having been fully repaid as of November 2014. 9.That even if there was any balance of the loan guaranteed which on opposition is vehemently denied, the first point of call would have been to the 2nd Respondent shares being that this was the 1st loan following which if there was any balance the 1st Respondent would have cleared the same by attaching the Claimant’s shares and not salaries.10. That in further if any balance was due the same would only be the interest not calculated which would total KSH 556,160. 60/=11. That in the above was the only amount due the same would have been already fully repaid by the 2nd Respondent shares and if any balance was due, the already deducted salaries would have cleared the balance meaning any current deductions being undertaken illegal and unlawful.

3. Consequently, the Claimants pray for Judgment against the Respondent for:a.KSH 741,000/= plus KSH 330,642/= being the total amount already deducted and any other amount being deducted from the Claimants.b.A declaration that the Claimants are not liable to service the 2nd Respondent’s default loan.c.The 2nd Respondent be ordered to service his outstanding loan.d.A permanent injunction barring the 1st Respondent from deducting any of the Claimant’s salaries to settle the 2nd Respondent’s purported loan.e.A mandatory injunction compelling the 1st Respondent to convert all the amounts deducted to shares and add them to the Claimant’s share capital.f.Cost of the suitg.Interest on (a) and (b) above at the Tribunal rates from the date of filing this suit until payment in full both days inclusive.h.Any other or further reliefs that this Honorable Tribunal may deem fit to grant.

4. The 1st Respondent responded to the Claim vide a statement of Defence dated 13th July 2018 filed on 14th August 2018

5. In the defense, the 1st Respondent states:1. In response to claim 7 of the amended claim.a.By an application dated 19th November 2009 the 2nd Respondent applied for a Jisaidie long-term loan from the 1st Respondent in the amount of KSH 1,215,652. 00/= with a monthly installment payment of KSH 38,000/=b.The 1st Respondent’s Credit Committee approved the 2nd Respondent's loan in the amount of KSH 1,215,652. 00/= at an interest rate of one percent (1%) per month of reducing balance.c.The loan was recoverable in sixty (60) monthly installments spread over five (5) yearsd.The amount repayable to the 1st Respondent from the 2nd Respondent as per the loan approved by the 1st Respondent Credit Committee was KSH 1,852,147. 20/= inclusive of interest at twelve percent (12%) per annum and spread over five (5) yearse.The loan was erroneously fed into the 1st Respondent’s system as being in the amount of KSH 1,215,652. 00/= as opposed to the correct loan amount of KSH 1,852,174. 20/=f.The loan of KSH 1,852,147. 20/= was guaranteed by the 1st, 2nd and 3rd Claimants on the 1st Respondent loan application form dated 9th November 2009. 2.The Ministry of Trade deducted KSH 20,261/= from the 2nd Respondent’s salary and remitted it to the 1st Respondent but denied that the loan was repaid in full or that the claimants were discharged from their responsibilities as the said was premised on the erroneous figure of KSH 1,215,652. 00/= as opposed to the correct figure of KSH 1,852,147/20/=3. That on 6TH May 2013, it granted to the 2nd Respondent a loan of KSH 429,715. 00/= based on the error in the system as pleaded in paragraphs 5 and 6 of the 1st Respondent’s Defense which showed that the 2nd Respondent was not in arrears based on an incorrect repayment figure on being fed into the 1st Respondent’s system on the earlier loan.4. That when the 2nd Respondent retired from employment and the 1st Respondent applied his shares to offset his latter loan; the 2nd Respondent’s shares were applied to offset the 2nd Respondent’s later loan as opposed to his earlier loan as a result of the error on the 1st Respondent’s system as pleaded in paragraph 4 and 5 of defense which showed the earlier loan was discharged.5. That it was notified to the Claimants that their salaries had been attached to the 2nd Respondent’s loan and that the Ministry of Industry, Trade, and Co-operatives commenced deductions of KSH 4,078. 00/= per month from the 1st and 2nd Claimant’s salaries and KSH 3,825. 00/= per month from the 3rd Claimant to service the 2nd Respondent’s loan.

6. The defense is accompanied by a list of documents and witness statements both dated 13th July 2018

7. The 1st Respondent prays that the Claimant’s claim as against the 1st Respondent be dismissed with cost.

8. The 2nd Respondent did not enter an appearance or file a defense and interlocutory judgment was entered against him on 17. 1.2017.

9. The parties agreed to canvass the case by way of written submissions.

The Claimant’s Submissions 10. The Claimant’s written submissions dated 7th March 2023 were filed on 20th March 2023.

11. While setting out their case, the Claimants admitted that they agreed to guarantee the 2nd Respondent on his development loan termed as “Jisaidie long term loan” of KSH 1,215,652/= which was recoverable in sixty (60) installments at an interest rate of 1% per month on reducing balance.

12. The Claimants argue that as per the 1st Respondent’s by-laws before a loan is issued; the Respondent considers:a.The member share contribution where loans are only given up to three times a member’s contribution.b.Monthly salary whereupon any deductions being made thereon not exceeded 2/3 of the member’s monthly salary.c.The age of the member in respect of the member’s retirement age.

13. The Claimants agree further that a loan the loan repayment period and monthly deductions are compensated in such a way that at the end of the repayment period, the whole loan inclusive of interest would have been paid in full. The Claimants state that in the present case monthly amount of KSH 20,261/= was deducted from the 2nd Respondent’s salary for the agreed 60 months from January 2010 to December 2014 and subsequently, no further deductions were made during the pleading monthly and that guarantors were automatically discharged from their responsibilities.

14. The Claimants state that in January 2010, a year, after the end of the rescheduled payment period, the 1st Responded notified them by text message that their salaries were attached to the repayment of the 2nd Respondent’s loan guaranteed by them, despite knowing that the 2nd Respondent had cleared the loan guaranteed by them; that the1st Respondent, without any explanation proceeded to attach the Claimant’s salaries and commenced deductions of KSH 4,078/= per month from the 1st and 2nd Claimants salaries and KSH 3,825/= from the 3rd Claimant’s salary.

15. The Claimants state that they were never served with any notice of the 2nd Respondent and that the procedure on default required the attachment of the guarantor’s shares on the third month of default and not the attachment of their salaries.

16. That the 1st Respondent unlawfully deducted KSH 1,071,642/= from the Claimant’s salaries hence this suit.

17. Upon citing the 1st Respondent’s statement, the Claimants raised several issues for determination:a.Whether the Respondent deducted the sum of KSH 1,071,642/= lawfully from the Claimants.b.Whether a permanent injunction should be issued barring the 1st Respondent from deducting any of the Claimant’s shares to settle the 2nd Respondent’s loan.c.Whether mandatory injunction be issued compelling the 1st Respondent to convert all the amounts deducted to shares and add them to the Claimant’s share capital.d.Who should bear the cost of the suit?

a. Whether the Respondent deducted the sum of KSH 1,071,642/= lawfully from the Claimants 18. While in agreement that guarantors such as the Claimants have a responsibility to repay a loan, they guarantee the borrower the question is whether, in the present case, there was a default by the 2nd Respondent in the payment of the loan guaranteed by the Claimants.

19. The Claimants submitted that the 2nd Respondent’s guaranteed loan was of KSH 1,215,652/= fully paid in monthly installments of KSH 20,261/= within 60 months in compliance with the contract between the 1st Respondent and the 2nd Respondent.

20. The Claimants submitted a matter that the 1st Claimant breached the contract of guarantee when it deducted the salaries of the Claimants without any instructions.

21. In support of this contention, the Claimants cited the case of Jackline Njeri Kariuki vs. Moses Njung’e Njau (2021) eKLR in explaining the meaning of breach of contract.

22. Further, the Claimant argues that the 1st Respondent acknowledged that the 2nd Respondent complied with the loan agreement and claimed that there was an error in feeding the loan amount into the system but unlawfully deducted from the Claimant’s salaries a total of KSH 1,071,642/= towards the loan which was not guaranteed for.

23. The Claimants urge the Tribunal to find that the 2nd Respondent duly complied with the obligations in the loan agreement and the Tribunal to be persuaded by the decision of the Tribunal in the case of Jenifer Mukiri Kijogu vs Harambee Sacco Society Ltd (2020) eKLR

24. The Claimant’s question is why the 1st Respondent did not declare the loan Application form null and void on the account of the alleged error; instead, it contrived to receive the monthly repayments until full payment of the loan account.

25. Further, the Claimants argue that no notice informing the 2nd Respondent of any error had been proved to have been issued by the 1st Respondent as required under Regulation 28(6) of the Sacco Societies (Deposit-taking Sacco Business)

26. Similarly, the Claimants argue that the 1st Respondent has not adduced evidence to prove that it serves the 2nd Respondent with notice of default.

27. The Claimants contend that further under Section 36(1) of the Sacco Society Act, a charge against the deposit and share capital and upon any dividend or interest payable to a member for any debt due to the society from the member, hence the 1st Respondent had the option of applying the 2nd Respondent’s shares to offset his outstanding loan and that instead the shares were used to offset a second loan; that act was unjustified and in bad faith.

28. The Claimants submitted that the deductions of the Claimant's salaries were unlawful and asked the Tribunal to find so, as the 2nd Responded was not in default and had finished paying his loan as per the loan form.

b. Whether a permanent injunction should be issued barring the 1st Respondent from deducting any of the Claimant’s shares to settle the 2nd Respondent’s loan 29. The Claimants argue in favor of their prayer for the permanent injunction because:1. The 2nd Respondent has settled the loan.2. The Claimants can establish a prima facie case there being a breach of their right to fair administrative action and also a breach of contract, being the unilateral charge of terms of contract. The Claimants argue that they were not notified before the action of deductions of their salaries was commenced and deductions were made unlawfully in breach of contract.3. The Claimants did suffer irreparable injuries; that if the permanent injunction is not granted, further deductions will be done towards the erroneous sum of KSH 1,852,147. 20/= and the Claimants will be forced to pay a different loan than what they guaranteed; that the court cannot re-state a contract between parties.4. The balance of convenience tilts in favor of the Claimants because:a.If the deductions of salaries are allowed, it would be a breach of their right to fair administrative action and a breach of contract.b.The 1st Respondent has not shown any loss or prejudice that would occur if the permanent injunction were granted; that is the Claimant would mostly be affected by the failure to grant the permanent injunction; hence the balance of convenience tilts in their favor.c)Whether mandatory injunction be issued compelling the 1st Respondent to convert all the amounts deducted to shares and add them to the Claimant’s share capital.

31. In their argument in support of the prayer of grant of the mandatory injunction, the Claimants state that their case is clear, and it demonstrates special and exceptional circumstances; they argue that it is clear that they were guarantors for a loan amount of KSH 1,215,652/= which loan was repaid within the repayment period.

32. The Claimants argue with reliance on case law for the definition of special circumstances in that the salaries deducted from the Claimants were for non-interest loan repayment and therefore the deducted sum can be converted to be part of the Claimant’s shares.

d) Who should bear the cost of the suit? 33. The Claimants seek the cost of the suit and support their claim with case law, submitting on the general rule that cost follows the event unless the court is notified otherwise.

1st Respondent’s Written Submissions. 34. The 1st Respondent's written submissions dated 10th August 2023 were filed on 22nd August 2023.

35. The 1st Respondent in its submissions begins by giving a summary of their defense as follows:1. The Claimants were and still are at all material times relevant to the suit, members of the 1st Respondent Sacco.2. By way of an application dated 19th November 2009 the 2nd Respondent applied for a Jisaidie Long-Term loan from the 1st Responded in the amount of KSH 1,215,652. 00/= with a monthly installment payment of KSH 38,000/=3. The 1st Respondent’s Credit Committee approved the 2nd Respondent’s first loan in the amount of KSH 1,215,652/= at an interest rate of one percent (1%) per month on reducing balances.4. The first loan was recoverable in sixty (60) monthly installments sped over 5 years.5. The amount repayable to the 1st Respondent from the 2nd Respondent as per the first loan approved by the 1st Respondent Credit Committee KSH 1,852,174. 20/= inclusive of interest at twelve percent (12%) per annum and spread over five (5) years.6. The first loan was however erroneously fed into the 1st Respondent system as being in the loan amount of KSH 1,215,652. 00/= as opposed to KSH 1,852,174. 20/= which was the correct loan figure.7. The amount of KSH 1,215,652. 00/= failed to factor in the interest element of 12% per annum on a reducing balance spread over a period of five (5) years.8. The first loan of KSH 1,852,147. 20/= was guaranteed by the 1st, 2nd, and 3rd Claimants herein.9. On the repayment of the first loan, the 2nd Respondent through its employer, the Ministry of Trade, paid the sum of KSH 20,261. 00/= from the 2nd Respondent’s salary and remitted the same to the 1st Respondent, however, the first loan was never fully repaid nor were the Claimant’s discharged from their responsibilities as guarantors since the deductions by the 2nd Respondent’s employer was premised on the erroneous figure of KSH 1,215,652. 00/= as opposed to the correct figure of KSH 1,852,174. 20/=10. On the 6th of May 2013, the 1st Responded granted the 2nd Responded a loan of KSH 429,715. 00/= (the Record loan) based on the error in its system which showed that the 2nd Responded was not in arrears based on an incorrect repayment figure being fed into the 1st Respondent system.11. The 2nd Responded retired on or about January 205 and the 1st Respondent applied his shares to offset his record loan of KSH 429,715/= The 1st Respondent aver that the 2nd Respondent’s shares were applied to offset the 2nd Respondent's second loan as opposed to his first loan as a result of the error on the 1st Respondent's system which showed the first loan was discharged.12. Because the first loan by the 2nd Respondent remained outstanding on or about January 2016 the 1st Respondent notified the Claimants by way of text messages that their had been attached to the 2nd Respondent’s loan and the Ministry of Industry, Trade and Co-operatives had commenced deductions of KSH 4,078. 00/= per month from the 1st and 2nd Claimant’s salaries and KSH 3,825. 00/= per month from the 3rd Claimant's to service the 2nd Respondent’s outstanding first loan.

36. The 1st Respondent has two issues for consideration as follows:a.Have the Claimants made out any case to warrant any grant of the orders sought in the claim?b.Who should bear the cost of the claim?

37. The 1st Respondent rendered the following analysis:

a. Whether the Claimants made any case to warrant a grant of the orders sought in the claim: 38. The 1st Respondent takes the position that the Claimant’s as guarantors were accessory to the contract between the 1st Respondent and 2nd Respondent as such undertake in the case of default to honor the terms of the contract irrespective of any dispute that may exist between the parties to the transaction for which the guarantee was given.

39. The 1st Respondent purports that Claimants agree that the 2nd Respondent defaulted in servicing his first loan and that the default automatically called up the responsibility of the Claimants to service the outstanding amount of the first loan and that whether the loan was fully settled before the 2nd Respondent’s retirement does not release the Claimant’s from liability of paying up the outstanding balance.

40. The 1st Respondent argues matter on this issue that the Claimant’s action lies with the 2nd Respondent who failed to ensure that his obligations under the first loan were freshly discharged.

41. The first Respondent outburst further that permanent injunction sought by the Claimants caught not to be granted since the prayer has been taken by events, once the Tribunal issued orders for stoppage of the deductions on the Claimant's salaries, the 1st Respondent complied with those orders and still complies to date.

42. The 1st Respondent has set out the conditions for the grant of permanent injunction and cited the case in support of its arguments.

43. The 1st Respondent in appropriation of the Claimant’s prayer for a permanent injunction compelling the 1st Respondent to convert all the amounts deducted to shares and add them to the Claimant’s share capital, argues that the prayer is not notified as the deductions were legal and the amounts were applied to clear the 2nd Respondent’s outstanding balance on the first loan.b. Who should bear the cost of these Claims? 44. The 1st Respondent submits that the cost of the case amounting to KSH 110,000/= has been paid to the Claimant’s advocate vide cheque No. 688478 which was acknowledged on 16th August 2021 and that no further cost is payable. The 1st Respondent argues further that if everything the 1st respondent should be paid other outstanding costs by the Claimant for being dragged to court to defend the Claim herein.

45. The 1st Respondent concludes that it has made out a case that the 2nd Respondent’s first loan was not fully repaid due to an error and the outstanding amounts were legally recovered from the Claimant’s and the case is therefore dismissed with costs.

Determination 46. We have carefully considered the pleadings and documents filed by the Claimants and 1st Respondents herein; including the written submissions and the authorities relied upon by the parties in their arguments. It is not in doubt that the Claimants and the 2nd Respondents were all members of the 1st Respondent.

47. It is also not in doubt that the Claimants guaranteed the 2nd Respondent’s loan granted by the 1st Respondent in November 2009.

48. The question is how much the 2nd Respondent’s loan was.

49. A close look at the Loan Application Form produced by the Claimant reveals that indeed, the 2nd Respondent applied for a Development Loan on 19. 11. 2009 and that the Claimant guaranteed the 1st Respondent’s loan to the tune of KSH 1,079,642/= as per part 5 of the form.

50. It is also clear from the Application form, part b, that the 2nd Respondent’s employer based on the 2nd Respondent’s payslips of September 2009, October 2009, and November 2009 stated that the 2nd Respondent qualified for a member loan of KSH 1,215,652/=

51. Under part 9 of the Loan Application form, we take note that the 1st Respondent’s credit committee approved the loan of KSH 1,215,652/= based on the aforesaid recommendation, which amount was repayable in 60 installments at an interest rate of one percent per month on reducing balance.

52. Nowhere on the said form do we see the loan amount of KSH 1,852,174. 20/=

53. We also do not see or understand where the monthly installment amount of KSH 38,000/= is indicated in the said loan documents.

54. It is very clear to us that the Claimants guaranteed a loan amount of KSH 1,215,652. 00/= Which was paid by the 2nd Respondent in monthly installments of KSH 20,261/= as can be seen from the 2nd Respondent’s account statement from the period from 26th November 2009 to 5th January 2016 and the accompanying pays lip for November 2014.

55. It is also clear from the statement that the guaranteed attachment accumulating to KSH 1,147,400/= was received from the guarantors.

56. The 1st Respondent does admit that there was not an error in the loan amount which resulted in the loan amount being indicated as KSH 1,215,652/= instead of KSH 1,852,147. 20/=

57. We find that the error of the 1st Respondent ought not to be visited by the guarantors.

58. We agree with the Claimants that the loan amount known to them was only paid by the 2nd Respondent in good time, hence the advancement of the 2nd loan by the 1st Respondent

59. We also agree with the Claimants that the 2nd Respondent's shares ought to have been used to clear any outstanding amount and that when the error was discovered by the 1st Respondent, they ought to have been given notice and sufficient explanation.

60. We find that the 1st Respondent did not practice a fair administration in the circumstances, nothing that the effect of the earlier would effectively result in the alternation of terms of the contract between the 1st Respondent and the 2nd Respondent and therefore the Claimants extent of responsibility on the loan guarantee.

61. We therefore find that the Claimant’s permanent injection is justified towards the preservation of further damages to the Claimant.

62. Further, we find that there are special circumstances in their case being that the Claimants are members of the 1st making it possible for this Tribunal to make orders about their relationship. We find no reason why the Claimants had to pay for loan amounts that were not stated in the loan agreement under which they guaranteed the 2nd Responded.

63. It is indeed curious that the 1st Responded did not take interest in its members; the Claimants regarding the charges of the actual obligations arising from the guarantee.

64. In conclusion, we did that the declaration made on the Claimant's salaries was unlawful.

65. Judgment in favor of the Claimants against the 1st and 2nd Respondents jointly and severally for:a.The sum of KSH One Million and Seventy-One Thousand and Six Hundred and Forty-Two (KSH 1,071,642/=)b.A permanent injunction barring the 1st Respondent from deducting the Claimant’s salaries to settle the 2nd Respondent's default loan.c.A mandatory Injunction compelling the 1st Respondent to convert all the amounts deducted from the Claimants to shares and add them to the Claimant’s share capital.d.The Claimants are awarded the cost of the suit less the sum of KSH 110,000/= already paid and interest at court rates from the date of filing this suit until payment in full.

JUDGMENT SIGNED, DATED AND DELIVERED VIRTUALLY AT NAIROBI THIS 31ST DAY OF AUGUST, 2023. HON. BEATRICE KIMEMIA CHAIRPERSON SIGNED 31. 8.2023HON. J. MWATSAMA DEPUTY CHAIRPERSON SIGNED 31. 8.2023HON. BEATRICE SAWE MEMBER SIGNED 31. 8.2023HON. FRIDAH LOTUIYA MEMBER SIGNED 31. 8.2023HON. PHILIP GICHUKI MEMBER SIGNED 31. 8.2023HON. MICHAEL CHESIKAW MEMBER SIGNED 31. 8.2023HON. PAUL AOL MEMBER SIGNED 31. 8.2023TRIBUNAL CLERK JEMIMAHHON. J. MWATSAMA DEPUTY CHAIRPERSON SIGNED 31. 8.2023CTC 422 OF 2016 JUDGMENT A.W.N 0