Samuel Munyao Nzioka v Housing Finance Company of Kenya Limited [2017] KEHC 2064 (KLR)

REPUBLIC OF KENYA

IN THE HIGH COURT AT NAIROBI

(MILIMANI COMMERCIAL COURTS)

CIVIL SUIT NO.671 OF 2008

SAMUEL MUNYAO NZIOKA.................................................PLAINTIFF

VERSUS

HOUSING FINANCECOMPANY OF KENYA LIMITED.....DEFENDANT

JUDGEMENT

Plaintiff’s Case

1. The plaintiff, Samuel Munyao Nzioka, by a plaint dated 25th November, 2002 filed in Court on 3rd December, 2002 seeks the following orders:

a)An order compelling the Defendant to register a Discharge of the Charge dated 20. 12. 1993 and the Further Charge dated 24. 11. 1994 over land title No. Nairobi/Block 129/359.

b)An order compelling the Defendant to return to the Plaintiff the original title documents in respect of land title No. Nairobi/Block 129/359.

c)An order of injunction perpetually restraining the Defendant, its servants, employees and/or agents from exercising the statutory power of sale conferred on the Defendant by the Charge dated 20. 12. 1993 and the Further Charge dated 24. 11. 1994 over land title No. Nairobi/Block 129/359.

d)An order of restitution compelling the Defendant to refund to the Plaintiff Ksh.375,394. 60.

e)Interest on (d) above at commercial rates or at such rates as the court may deem just.

f)Costs of this Suit.

2. According to the plaint, on or about 20th February, 1993, the Plaintiff at a time when he was an employee of the Defendant herein, borrowed monies from the Defendant and secured the repayment thereof with a Charge dated 20th December, 1993 and a Further Charge dated 24th November, 1994 over immovable property known as L. R. No. Nairobi/Block 129/359, (hereinafter referred to as the "Mortgaged Property").

3. According to the plaint, the Plaintiff tendered the contractual repayments promptly and without fail and/or delay through monthly deductions from the Plaintiff's monthly emoluments as per the terms of the agreement between the Plaintiff and the Defendant. However, on or about 25th February, 1999 he realized that there were some arrears erroneously charged and debited by the Defendant on his mortgage account amounting to Ksh.268,363. 67 which amount the Plaintiff refunded to the Defendant.  On or about 26th October, 2001, the Plaintiff paid the Defendant Ksh.1,500,000. 00 in order to fully repay the outstanding sum so that the Defendant could discharge the said Charge and Further Charge on the Mortgaged Property.  However, the Defendant refused, failed and/or neglected to discharge the Mortgaged Property on the pretext that the secured loan was not fully repaid.

4. According to the plaint, upon computing and calculating all the sums the Plaintiff has paid to the Defendant, the Plaintiff has not only fully repaid the mortgage account, but has overpaid the Defendant a sum of Ksh.375,394. 60, which sum the Plaintiff claims from the Defendant.

5. The plaintiff pleaded that through the use of a faulty and defective Computer Program and/or computer software for computation or calculation of the Plaintiff's mortgage account, the Defendant has wrongfully, illegally and erroneously calculated the Plaintiff's mortgage account and loaded it with unlawful, illegal and erroneous penalty and default charges not provided for in the said Charge and Further Charge executed between the Plaintiff and the Defendant.

6.  It was averred that despite demand for discharge of the Mortgaged Property, return of the title document and refund of the overpaid sum of Ksh.375,394. 60 and notice of intention to institute this proceedings, the Defendant failed, refused and/or neglected to comply with the Plaintiff's demand, hence the institution of this Suit.

7. In his evidence the Plaintiff testified that until September 2001 when he left his employment with the Defendant where he was working 1973 when he was employed. This suit, he testified relates to his mortgage with the Defendant which he applied for in 1993. He referred to the letter of offer for Kshs 595,000. 00 and the charge on his security. According to the plaintiff because he was staff the repayment of the 1st loan was to be at the staff of Kshs 4,280. 00 per month. This was to be by way of direct deduction from his salary on monthly basis.

8. The plaintiff testified that in 1994 he applied for the advance of Kshs 305,000. 00 which was secured by a further charge on the same property at monthly repayment of Kshs 6,466. 00 to be similarly be deducted from his salary per month.

9. While referring to the annual statements for the years 1993 to 1998, the plaintiff averred that from 1993-1998 he had no problem but as from 1998 November 23rd he started having problems with the statements. According to him these problems arose from the Defendant’s system. At this time he was in employment of the defendant. According to the Plaintiff, the bank said there was a problem with the software and referred to his documents at age 58 where according to him, the Defendant’s Chief Executive sought an explanation from a member of staff to explain how the problem came about and how it could be managed. The problem was explained on a change of system which affected the Plaintiff’ account by levying charges thereon twice or thrice. According to the Plaintiff it was as if it had created another account for arears and for the principal account.

10.  It was the Plaintiff’s case that after he was given his termination letter, he cleared the loan with the Defendant. He however, discovered that he had overpaid the mortgage. However the Bank did not believe him, thus compelling him get a consultant by the name of Crystalball Business Consultants to do the reconciliation of the accounts. The said Consultant did undertake the said reconciliation and prepared its report in which it was found that from the sum advanced to the Plaintiff by the Defendant, the Plaintiff had overpaid by Kshs 406,114. 60. When the Plaintiff communicated this to the Defendant, the latter insisted that the Plaintiff pays the arrears. It is at this point that the Plaintiff instructed his advocates to file the suit. He however testified that when he did his own calculation before retaining the Consultant he was of the view that he had a credit balance of Kshs 18,225. 00 and referred to his letter of 15th May 2002.

11. According to the Plaintiff despite the fact that he had repaid the money, the bank could not discharge the charge but instead attempted to dispose of his property by instructing the auctioneers to selling property and he was issued with a statutory notice in the sum of Kshs 941,506. 35. However the property was not sold as he obtained a court injunction.

12. According to the Plaintiff, it was not just his account that was affected by the system, but the accounts of other customers as well.

13. The Plaintiff therefore sought for orders that this Court does compel the Defendant to discharge the property, return his title and refunds him the overpayment and the costs of the suit. In support of his case, he relied on his bundle of documents filed on 3rd October 2008 which was produced before this Court as Plaintiff’s exhibit 1.

14. Upon being cross-examined by Mr Issa, learned counsel for the Defendant, the Plaintiff explained that he started working for the defendant in 1973 as a clerk and that by the time of his retrenchment in 2001 he was a senior clerk. By that time he had worked for the Defendant for 25 years.

15. According to the Plaintiff, the loan was secured by the charge dated 20th December, 1993 which he confirmed to have signed. Referred to the charge document, he confirmed that the repayment rate of the loan which was Kshs 595,000. 00, was Kshs 10,471. 00 at the rate of 21%. This was however before the further charge.  It was after this that the additional facility was advanced to him whose tenure was 25 years at 26% at repayment rate of Kshs. 6,466. 00 apart from life insurance.  Referred to the further charge dated 24th November, 1994, he confirmed that the repayment rate was Kshs 6,620. 00 based on an offer letter with similar terms saved for the repayment rate.

16. According to the Plaintiff he punctually repaid the and as at 27th January, 2001 the debit balance was Kshs. 1,634,095. 45. He however testified that it was at this time that he made payment the balance was Kshs. 1,919,765. 23 thus leaving a balance of Kshs. 419,763. 20. He however confirmed that he had complained before the 26th October 2001 through a letter. According to the Plaintiff he concluded the balance was Kshs 1,919,000 when he paid the lump sum. However referred to the statement he confirmed that on 29th January, 2001 he paid Kshs 3,510/-. He however contended that he was paying for another mortgage and not this one hence he made payment by mistake. He however confirmed that the statement required him to raise a complaint within 30 days but instead of raising a complaint he engaged a Consultant.

17. Referred to the letter dated 15th May, 2002 which he confirmed was written under his instructions, the Plaintiff confirmed that his instructions were that he had overpaid by Kshs 18,225. 00. The basis for this figure was because he had worked out the arrears himself and based his calculations on the statements from inception till November, 1998. It was his evidence that as at 26th October, 1998 he owed the balance of Kshs 1,297,444. 40 as at which time he had no problem. He however did not agree that as at October 1998 the system was correct. Thereafter, there was some adjustment of the arrears but as at 1st February 1999 after the adjustment the arrears was not correct because the error continued. Between 1999 to 2001 he did complain but he didn’t have the referring to the repayments. Referred to page 43 he confirmed that the opening statement showed the sum of Kshs 859,046/35 which is what he was using though he disputed the figure. According o him, his dispute was in respect of Kshs 622,000. 00 though he had not sought consultation by the time he wrote this letter.

18. According to the Plaintiff his calculations were based on the figure from 1991 to 23rd November, 2001 based on the statement as at that date showing arrears of Kshs 461,627. 10. This is what gave the figure of 627,000. 00 based on interest rate of 18%. In November rate was 26%. Referred to the letter for the CEO, the Plaintiff insisted that it stated that the system was incorrect though he confirmed that the error was identified and rectified in phase 1 between April and June. In phase 2 the problems place were rectified and it was admitted that in phase one there were errors in computation of interest.

19. Referred to the Defendant’s list of documents, the Plaintiff agreed that Memo at page 27 reflected the correct arrears. To him the only errors were in respect of fire and life insurance which reduced his monthly repayment to Kshs. 24,538. 00. Referred to the statement he admitted that the repayment had gone down to 19,617. 00 and as at 30th November, 1999 when he made his proposal he was in arrears and requested to increase monthly instalments by selling his other property. Thereafter he opted or early voluntary retirement and sought waiver of Kshs. 500,0000. 00 as well as the penalties. He however contended that he wrote his letter before be checked his accounts and that it was after he did his accounts that he differed with them because his request was not considered.

20. Referred to bundle he confirmed that the Defendant stated that the payment was not in full payment. According to him, he was expecting a credit balance. He however confirmed that he received the statutory notice dated 23rd October, 2004 as well as notification from the auctioneers. He however confirmed that since the filing of this suit he has never made any repayments and accordance to the Defendant the balance is Kshs 1,237,517. 35.

21. In re-examination by Mr Achach, the Plaintiff reiterated that the repayments were being deducted directly from his salary and that he complained before he left the company by way of a letter. He stated that the Defendant realised their mistake and did re-adjustment. According to him, the rate of 26% was the rate applicable to all the clients but there was a special staff rate which was 5½%.

22. According to the Plaintiff he was at the Bank when the Bank was implementing its plans. He insisted that the Bank clearly acknowledged that there were problems and that this was what affected hi accounts. He explained that he did his own calculations between March and April, 2002 and at the time he wrote his letters h had not done his calculations. He however insisted that he had overpaid.

23. In support of his case, the Plaintiff called Benjamin Mbithi Kinyumo as PW2. According to the witness, he was doing some consultancy in finance Bank financing. He held a Bachelor of Commerce (Accounting option) degree and was teaching part time at the School of Monetary Studies.  He testified that he was the sole proprietor of Crystalball Business Consultants and that the plaintiff was his client.

24. Referred to the plaintiffs bundle, he confirmed that the plaintiff consulted him to do a calculation of interest charged on his mortgage account. PW2 tasked the Plaintiff to provide the statement which the Plaintiff did and gave him a brief that he should look into the calculations between January 1999 and October 2001 when he paid the bank a lump sum of Kshs. 1,500,000.

25. According to the witness, from his calculation, he found that there was an overcharge on the account and the Plaintiff was supposed to get a refund. The main cause of discrepancy was in a manner in which interest was being levied, particularly on the capital account. There were two bank account the original loan account and the arrears account. Whenever the repayment is being advanced in the mortgage account, that instalment covers both elements of capital repayment and the element of interest repayment. So there would be no need to levy interest in the capital account as was indicated in the bank statement. It was the witness’ view that extra charge on capital account is not merited.

26. According to him, by the time the statements were they rolled over to 1999. According to him, the Plaintiff owed bank capital balance of Kshs. 848,367. 59, and the amount that had accumulated in the arrears account was Kshs 507,156. 03 hence the plaintiff  owed at end of 1998 Kshs. 1,355,523. 62. He was however made to understand that the Bank has recognised that there was an error of calculating interest and therefore the bank on 25/2/95 reimbursed some interest that had been charged on the arrears amounting to Kshs. 268,363. 67 which the bank acknowledged.

27. Based on that background at that time the plaintiff owed the bank Kshs 1,115,114 by which time he paid the Kshs. 1,500,000. 00 yet he was required to pay Kshs 1,919,763. 00 in 2001 which amount according to PW1, considering that the plaintiff was making some repayments though not  total, was a little on the higher side. This is what informed his calculation which confirmed that at that point the capital account was 466,367. 00 while the arrears account was Kshs 647,517. 00. It was his evidence that the Plaintiff owed the Bank Kshs 1,093,885. 40 and was entitled to refund 406,114. 60.

28. In cross-examination by Mr Issa, PW2 expounded that other than the statements, he referred to the letters from the bank advising regular review of repayment amounts. He however did not refer to the charge instruments and had no idea what the charge instruments provided with respect to the repayment interests. He however admitted that the primary documents governing a mortgage facility is the contract between the borrower and the bank. In this case it would be the letter of offer which he did not see. His computation was for a period of two years between 1999 and October 2001 a period of two years. He however said that he did not know how long it had been running as he did not inquire about the tenure.

29. Referred the documents, the witness confirmed that they are the ones he relied on. He however conceded that if the charge documents provided different rates of interests his opinion would have been different. He conceded that there was a need to read the charge and the letter of offer. He however stated that there was one statement of account and that in preparing his report he did not consult the defendant.

30. Referred to the documents, the witness admitted that the plaintiff informed him that he was in arrears. While reiterating that he did not read the charge, he disclosed that he had prepared reports for other banks and in so doing he never looked at the charge because it was not critical.

31. The witness confirmed that he knew that the Plaintiff had worked for the Defendant Bank.

32. With that evidence, the Plaintiff’s case was closed.

33. It was submitted on behalf of the Plaintiff that in light of the admission that the use of the software was erroneous, the Defendant is not entitled to charge the plaintiff any penalty interests, interest on arrears, default charges that the Defendant charged. It was his submission that the interest rate varied contravened the contractual stipulations between the parties and relied on Christopher Ndolo Mutuku & Another vs. CFC Stanbic Bank Limited [2013] eKLR and submitted that the special interests as alleged by the Defendant are not justiciable on the contract and the same ought not to have been levied without his consent. The Plaintiff also relied on Givan Okallo Ingari & Another vs. Housing Finance Co. (K) Ltd Nairobi HCCC No. 79 of 2007 [2007] 2 KLR 232.

34. Reliance was also placed on Article 46(1)(b) and (c) of the Constitution and it was submitted that in the absence of any evidence that the Plaintiff was given the contractual notice the variations of the rates of interest to the Plaintiff’s detriment was unlawful.

35. It was therefore submitted that the Plaintiff is entitled to a refund of Kshs 375,394. 60.

36. To the Plaintiff he proved his case and was entitled to the reliefs sought.

Defendant’s Case

37. In its written statement of defence, the defendant denied that Kshs 268,363. 67 had erroneously been charged and debited on the Plaintiff’s mortgage account. Save that the Plaintiff paid the Defendant Kshs 1,500,000/= on 26/10/2001 the Defendant denied that the payment was made in full and final settlement of mortgage account.

38. It was therefore its case that that the Plaintiff has todate failed to fully repay the sum advanced and the interest accrued. It was denied that there was any credit balance on his the Plaintiff’s mortgage account and instead the Defendant’s position the Plaintiff’s was still indebted, and that as at 18/11/202 the account was in arrears to Kshs 57,039. 15 against a loan balance of Kshs 506,092. 65 which amount continued to attract interest at agreed bank rates.

39. It was further denied that the demand and intention to institute legal proceedings was issued and in any case the Plaintiff was not entitled to demand return of the documents or any refund. Consequently, it was the Defendant’s case that the Plaintiff was not entitled to any of the orders sought in the plaint.

40.  It was pleaded that the Plaintiff’s suit is misconceived bad in law, raises no cause of action and is an abuse of the process, and should be struck out.

41. In support of its case, the Defendant called Migwi Mungai, as DW1. According to him, he was the manager litigation of the defendant company. He averred that the plaintiff was in 1996 a staff member of the defendant. He testified that the Plaintiff was given a mortgage facility of Kshs 595,000. 00 payable within a period of 25 years at the rate of 21% p.a. However being a staff member he was given a special staff rate of 5½% p.a. The said facility was to be secured by a charge of the plaintiff property in Komarock phase II Nairobi Block 129/359 which charge instrument was registered dated 20th December 1993 to secure the sum of Kshs 595,000 at interest rate of 21% p.a.

42. According to the witness, the monthly instalment was Kshs. 10,471. 00. It was averred that the plaintiff went for a further advance on 15th October of 1997 and the defendant agreed to advance to him further sum of Kshs 305,000. 00 payable over a period of 25 years at interest rate of 26% p.a. However, being a staff he was given a staff rate of 5½ p.a. and the facility was to be secured by the property in Komarock Nairobi Block /129/359. The further charge was dated 24th November, 1994 at the monthly instalments of Kshs 6,620. 00 which was variable. According to DW1, these were special terms and conditions applicable to staff loans and mortgages. However should they leave the defendant’s employment, the concessionary rate would be withdrawn. It was explained that there was also an aggradation of the years so that if one left within the 1st year he would pay a certain percentage of the excess premium. Referred to the letter of offer, the witness confirmed that it contained the difference between the concessionary payment and the original figure without concession. He explained in the first year it would be 100%, 2nd year 75%, 3rd year 500 and 4th year 25% and all the other terms in the letter of offer applied.

43. Referred to the charge the witness stated that under clause 4 thereof, there was a provision for variation of interest calculated on the whole of the sum advanced to the borrower before the last date of the month from the date of the advance. According to the witness the decision of the chargee on the variation was not subject to question and that the notification of the same was to be effective on the first day after the month after the date of notification. He accordingly referred to various notices advising on the variation in interest. f It was averred that the Plaintiff was duly advised on the rate of interest.

44. According to the witness, the plaintiff left employment on 24th January, 1997 at which point the Defendant informed him that the mortgage account had been converted to commercial rate in compliance with staff lending policies.

45. It was conceded that the Plaintiff disputed the calculation and the Defendant admitted the error in calculating final life insurance and or adjustment was done downwards by Kshs 211/-. The plaintiff however did not pay the outstanding amount despite admitting vide his letter dated 30/11/89 that his mortgage account was in arrears and making proposals on how to repay. At this time he was still on employment. It was revealed that the Plaintiff had the 2nd mortgage accounts one at staff rate while he had another one at commercial rate. Apart from the property Nairobi 129/35 Komarock the plaintiff also had another property Nairobi  block 134/520 in the same area but they had separate accounts with the mortgage account for block 129/359 the number being 98114666 while for block 134/520 being 98114667.

46. The witness then referred to a letter dated 29th November, 1999 from a property agent known as Piflow Property Agents Ltd stating thanking the plaintiff for instructing them to sell property no. 520 which was the security for the commercial loan. It was explained that one could not enjoy two mortgages under the staff mortgage policy.

47. The witness referred to the letters in which the Plaintiff confirmed that he was in arrears and offered to sell the property on commercial rate to clear arrears at staff rate and he attached a letter from the agent and asked whether the amount could be capitalised in order to stop the accrual of penalties. It was explained that capitalisation means the conversion of the amount in question into a new loan. This however was not done. As at 30th November, 1999, the plaintiff was still a member of the defendant’s staff.

48. Vide a letter dated 12th May, 2000, the Plaintiff was informed that the rate of interests would move upwards in respect of the mortgage account for staff loan and he admitted being in arears and stated he was  going to dispose of the other property. He however did not honour his promise despite acknowledging that he was in arrears and seeking the waiver of Kshs 500,000. 00 and that his retirement benefits be applied in clearing the arrears.  Following the Plaintiff’s inability to honour his promises, the Defendant was prompted to demand the arrears and as there was no compliance on 28/10/05, the Defendant issued statutory notice in respect of Kshs 941,506. 35 which was sent by post.

49. It was averred that since 2005 the Plaintiff has not made any payments other than 3,500 and 15,017. 23 though the account was zero rated. As at 1/01/09, the sum due was Kshs. 1,437,517. 35. It was the Defendant’s case that the plaintiff having admitted being in arrears the defendant was not legally obliged to release the security. According to the Defendant, the plaintiff’s calculations are incorrect as they are not based on charge documents.

50. Since the plaintiff’s accountant was challenging the calculation of the mortgage, it was prayed that the injunction in place be discharged and the defendant be allowed to realize the security and the plaintiff’s suit be dismissed with costs.

51. In cross-examination by Mr Achach, DW1 stated that he was the legal manager of the defendant litigation and that he joined defendant 2½ years prior to his testimony long after the plaintiff left the Defendant’s employment though he did not know when the Plaintiff joined the Defendant. He however confirmed that the plaintiff was an employee of the defendant when he took the first facility and as an employee he was given a concession which is a benefit that the Defendant gives to employees to enable them occupy residential houses for owner-occupier purposes. When considering to give the facility, it was explained that the salary is a consideration and the monthly repayment for such an employee is direct salary deduction.

52. According to the witness the Plaintiff had two running concurrent loan accounts without any indication of linkages from the record. To the witness the two facilities were advanced to the Plaintiff whether by omission or commission but he had no financial capacity to service both loans going by his payslip. The witness could not say whether it was by oversight on the part of the defendant that it was not noticed that the plaintiff had no such capacity. It was explained that the first facility had the monthly repayment of Kshs 10,471. 00 which was variable while the second facility was for Kshs 6,620/= per month also variable.

53. It was averred that had the Plaintiff repaid the loan as contracted in the charge documents there would have been no dispute between the parties since he would have repaid the capital plus the interest. According to him the monthly repayments included the capital, interest and insurance. However if the Plaintiff repaid less the amount outstanding would become arrears and the next payment would be applied to clear the arrears before applying the same to the capital, interest and insurance. It was therefore contended that the said payment would not necessarily have the element of capital, interest and insurance because when part payment is made the arrears is carried forward and is charged with a default interest having not been paid as per the contract. He however did not agree that in such circumstances an arrears account is opened but the payment would be a[plied in the running account though the statement could operate arrears and the capital for ease of reference to the customer. Apart from the default charge on arrears, it was stated that there is interest on capital and interest on arrears and the capital repayment itself. However if the borrower repaid as contracted such charges would not arise. However once there is a default there is a default/penalty charge as both the capital and the arrears accrue interest. He explained that both the interest on arrears and default charges were contractual.

54. Referred to the statement, he confirmed that there was no interest on arrears for the month of January and May 1999 which he attributed to computer or human error. According to him, interest on arrears can be entered twice even for the same month. While the statement was running twice, it was his evidence that the cumulative figure was the same as interest on capital.  He confirmed that on 22nd February, 1999, there was an erroneous charge on the arrears but this was corrected.

55. DW1 explained that whereas the Plaintiff was enjoying concessionary rates he was unable to service the mortgage loan account and according to t lending policy, when a staff falls into arrears, the mortgage facility is converted to commercial rate. In this case the loan was converted to commercial rate on 24th January, 1997 in accordance with the said policy. Asked whether it was only the first facility that was converted, the witness denied this and reiterated that a staff cannot have two facilities at staff rate.

56. It was admitted that there were hiccups when the Defendant was changing computer software a phenomenon which is normal in banking system. The witness however denied that these were computer errors. The hiccup was that the month of January was not captured. He confirmed that some customers filed suits challenging the mortgage loan statements but the statements were eventually found to be correct. The witness therefore denied the existence of errors in the mortgage loan statements and reiterated that there were various admissions by the Plaintiff that he was in arrears. He denied that the sum of Kshs 1. 5 million paid by the Plaintiff was more than enough to pay the arrears.

57. According to him he was not sure whether out of Court settlement was attempted. He confirmed that the Plaintiff retired on 30th September, 2009 and that at the time of the payment of Kshs 1,500,000/- the arrears wee Kshs 24,000. 00 or thereabouts. He however denied that the Defendant was to blame for advancing the loan and that the interest on arrears was being levied twice. According to him the Plaintiff was not making the repayments.

58. In re-examination by Mr Issa, DW1 stated that if there are arrears the next payment will be applied to pay the interest an arrears and if there is persistent default in repayment then any payment in excess will first be used to pay the arrears and interest before being applied for the interest. According to him, the staff rate was applied to mortgage until 24/1/97. However on purely humanitarian grounds the defendant waived interest due and payable to the defendant. It was not erroneous but actual correct arrears and interest which the defendant chose to write off. He however denied that there was in error in the computation of interest on the client’s account.

59. On behalf of the Defendant it was submitted that the Plaintiff has not given any particulars of how he arrived at the figure of Kshs 375,394. 60 and the basis upon which he claims that he overpaid the Defendant. Being a claim in special damages, it was submitted that strict proof is required. In this case the Plaintiff was under obligation to show and prove that from inception of the mortgage facility how much he paid and how much was due thereunder. In this respect the Defendant relied on Hahn vs. Singh [1985] KLR 716 and Pop In Kenya Limited & Others vs. Habib Bank A.G Zurich [2016] eKLR.

60. In this case it was submitted that the Plaintiff did not contradict nor challenge the tabulation of the instalments paid towards repayment of the mortgage account from the time the mortgage facility was granted in 1993. However the report of PW2 starts from 1st January 1999 and not from inception of the account. It was submitted that the said witness did not give a basis for the interest applied as he had not verified with the Defendant on the applicable interest rates for the period of his tabulation and failed to explain where he obtained the rate of 18% p.a yet the Defendant’s list and bundle of documents confirmed that the applicable rate of interest for the period was 24%.

61. According to the Defendant, the Plaintiff’s entire claim is premised on the report prepared by PW2. In regard to whether PW2 was an expert, the Defendant relied on Cross & Tapper on Evidence, 11th Edition by Colin Tapper. According to the Defendant, the Plaintiff’s witness was an unqualified person in law to be considered as an expert. He did not testify and establish any special skill, knowledge or practical experience that he had in banking, finance, securities law or mortgage financing, in order for the court to consider his opinion on the recalculation of interest computation. The fact that he had failed to appreciate the importance of the Charge instruments and the letters of offer in computing interest, it was submitted disqualifies him from being considered as an expert. In support of this submission the Defendant relied on Gatheru S/o Njagwara vs. R [1954] EA 139.

62. It was the Defendant’s submission that the said witness did not exhibit any expertise and was a bit casual in the way he approached the task of recalculation of the entries in the statement of account. In support of its submissions the Defendant relied on Kenya Commercial Bank Limited vs. Rupa (K) Limited & 2 Others [2014] eKLR.

63. In this case PW2 calculated the purported interest overpayment while the statements and letter produced confirmed that the Plaintiff had defaulted. According to the said submissions, PW1 calculated the purported interests overpayment while the statements and letters produced confirmed that the Plaintiff defaulted. There were no payments or actual deposits that were made by the Plaintiff. The Court was urged to weigh the opinion of the ‘expert’ against all the other facts and evidence tendered in the case. The Defendant also relied on Parvin Singh Dhalay vs. Republic [1997] eKLR;[1995-1998] 1 EA 29.

64. It was therefore submitted that the Plaintiff failed to prove his claim for the alleged overpayment and refund as required by the law. In this case the Plaintiff was an employee of the Defendant and instead of raising any issues of irregularity in the computation of interest in his account before leaving employment, he instead admitted his indebtedness and sought for waiver of the outstanding balance even after making the payment of Kshs 1,500,000. 00.

65. It was therefore urged that the suit be dismissed with costs and the injunctive orders made on 20th November, 2006 be discharged.

Determinations

66. I have considered the pleadings herein, the evidence given by and on behalf of the parties herein as well as the submissions filed herein.

67. From the issues as drawn by the parties, it is clear that the following are the matters that broadly fall for determination in this suit:

1)Has the Plaintiff paid to the Defendant the entire amount borrowed and secured by the charge and further charge over L. R. No. Nairobi/Block 129/359 dated 20. 12. 1993 and 24. 11. 1994 respectively?

2)Was there an erroneous debiting of Kshs.268,363. 67 on the plaintiff’s mortgage account on the 25th February 1999? If so, was this amount refunded by the plaintiff?

3)Was the Plaintiff’s mortgage account in arrears of Ksh.57,039. 15 against a loan balance of Ksh.506,092. 65 as on 18th November, 2002?

4)Did the sum of Ksh.1,500,000 paid by the Plaintiff to the Defendant on 26. 10. 2001 fully repay the outstanding loan sum?

5)Has the Plaintiff overpaid the Defendant by Ksh.375,394. 60 and therefore entitled to a refund of the said amount?

6)Did the Defendant, on account of a faulty computer program and/or software, load the Plaintiff’s mortgage account with illegal and erroneous penalty and default charges?

7)Did the Plaintiff demand from the Defendant a refund of the amount overpaid, discharge of the mortgaged property, a return of the title documents and/or give notice of intention to commence these proceedings?

8)Is the plaintiff entitled to the orders sought?

9)Who is to bear the costs of this Suit?

68. Dealing with the first issue whether the Plaintiff paid to the Defendant the entire amount borrowed and secured by the charge and further charge over L. R. No. Nairobi/Block 129/359 dated 20. 12. 1993 and 24. 11. 1994 respectively, from the correspondences addressed to the Defendant by the Plaintiff it is clear that for along time the Plaintiff believed that he was in arrears. He in fact sought waiver of some charges and at one point requested that the arrears be capitalised into a loan so as to stop the accrual of interest on arrears. It was only through the recalculation of the interests by PW2 that it dawned on the Plaintiff that he had in fact overpaid the loan.

69.  In other words the Plaintiff’s case with respect to the repayment hinges upon the opinion of PW2.  The status of opinion evidence was dealt with in Shah and Another vs. Shah and Others [2003] 1 EA 290 where the learned Judge expressed himself as follows:

“One of the special circumstances when witnesses may be called to give evidence of opinion is where the situation involves evidence of expert witness and this is an exception to the general rule that oral evidence must be direct…The expert opinion is however limited to foreign law, science or art; including all subjects on which a course of study or experience is necessary to the formation of an opinion and handwriting is one such field…However as a rule of practice, a witness should always be qualified in court before giving his evidence and this is done by asking questions to determine and failure to properly qualify an expert may result in exclusion of his testimony…The opinion of the expert witness is not binding on the court, but is considered together with other relevant facts in reaching a final decision in the case and the court is not bound to accept the evidence of an expert if it finds good reasons for not doing so…If there is a conflict of expert opinion, with experts appearing for both parties, resolution of conflicting evidence or the acceptance of the evidence of the expert in preference to the opinion of the other, is the responsibility of the court…Properly grounded expert evidence of scientific conclusion will be extremely persuasive in assisting the court to reach its own opinion.”

70.           That is the position of Cross & Tapper on Evidence, 11th Edition by Colin Tapper, where the learned authors state at page 566 that:

“A witness may not give his opinion on mattes that the court considers call for the special skill or knowledge of an expert unless he is an expert in such matters, and he may not give his opinion on other matters if the facts upon which it is based can be stated without reference to it in a manner equally conducive to the ascertainment of truth. There are thus two broad spheres of evidence of opinion. The first concerns matters calling for specialised skills or knowledge. In this sphere, the only questions are whether the subject of inquiry does raise issues calling for expertise, and whether the witness is a qualified expert…In the law of evidence, ‘opinion’ means any inference from the observed facts, and law on the subject derives from the general rule that witnesses must speak only to that which was observed by them. The treatment of evidence of opinion by English law is based on assumption that it is possible to draw a sharp distinction between inference and the facts on which they are based.”

71. The same position was adopted in Gatheru S/o Njagwara vs. R [1954] EA 139 where it was held that:

“Section 45 of the Indian Evidence Act provides that when the court has to form an opinion upon, inter alia a point of science, the opinions of “persons specially skilled in such science” are relevant. We think that such special skill is not confine to knowledge acquired academically but would also include skill acquired by practical experience. In Vander Donckt vs. Thelluson, (1849) 8 CB 812, Maule, J., SAID “All persons, I think who practice a business or profession which requires them to possess a certain knowledge of the matter in hand are experts so far as experience is required. That case has been very recently approved by their Lordships of the Judicial Committee in an appeal from Nigeria, Said Ajami vs. Comptroller of Customs, where their Lordships said that the practical knowledge of a person who was not a lawyer might be sufficient in certain cases to qualify him as a competent expert on a question of foreign law…It may well be that the present circumstances in Kenya a police officer employed on operational or investigation work acquires a sufficient practical knowledge to qualify him to speak as an expert on the type of home-made weapon so frequently used by Mau Mau terrorists, but even so, his competency as an expert should, as in all cases, be shown before his testimony is properly admissible. In the instant case the officer in question merely describes himself as an inspector of police attached to the Criminal Investigation Department, Nanyuki. There was no evidence as to how long her performed such duties or whether he had ever seen or examined any home-made weapon other than those seized in the course of the operation which led to the appellant’s arrest. The failure on the part of counsel for the defence to challenge this evidence does not excuse the laxity shown by counsel for the Crown in failing to establish the competency of the witness. Further, we would with deference point out that it is the duty of the presiding Judge to satisfy himself on this issue before receiving the opinion evidence.”

72. However, when all is said and done, as was held by the Court of Appeal in Juliet Karisa vs. Joseph Barawa & Another Civil Appeal No. 108 of 1988, expert evidence is entitled to the highest possible regard and though the Court is not bound to accept and follow it as it must form its own independent opinion based on the entire evidence before it, such evidence must not be rejected except on firm grounds.

73. In this case, PW2, Benjamin Mbithi Kinyumo, testified that he was engaged in some consultancy in bank financing and was a holder of Bachelor of Commerce (Accounting Option) degree. He was also a part time teacher at the School of Monetary Studies and had a firm.  In his evidence it is clear that the witness did not base his evidence on the transactions that took place from the inception of the loan in 1993. Rather, his report covered two years from 1999 to 2001. He was not even aware how long the statements had been running.

74. Apart from that his report was only based on the bank statements and the correspondences from the bank. He admitted that he never perused the charge document and the letter of offer which he admitted were the primary documents governing a mortgage facility and constituted the contract between the borrower and the bank and that there was a need to read the charge and the letter of offer. He readily conceded that if the charge documents provided different rates of interests his opinion would have been different and that he did not consult the defendant. The witness however admitted that the Plaintiff informed him he was in arrears. He however insisted that he had prepared reports for other banks without the benefit of the charge document because in his view it was not critical.

75. That the terms of a mortgage are contained in the letter of offer and the charge document is not in doubt. In fact it is these documents that form the contract between the parties and apart from them, no other terms save for those implied by the law can be incorporated in the contract.  This was the position in Spares & Services & 2 Others vs. Trans-National Bank Kisumu HCCC NO. 439 of 1994, where the Court pronounced itself as follows:

“Having considered the documents filed, the Court is of the firm view that the contract between the parties is the charge: It is the one which spelled out the terms and conditions which the parties were obliged to adhere to during the existence of their relationship.”

76.  In this case it was contended that the contract provided for the variation of the rate of interests to commercial rates. This interest, according to the Defendant was varied from the staff rate of 5 ½% to 26%. PW2 however applied the rate of 18% without referring to the charge document or contacting the Defendant. No wonder he readily conceded that had be had the benefit of reading the contractual documents, his opinion would have been different. It would seem that PW2 simply relied on the information given to him by the Plaintiff but did not conduct his own independent investigation in order to arrive at an independent opinion.

77. In his report apart from setting out what in his view ought to be the legal position, the witness then proceeded to speculate as to what were the problems in the accounts. He however did not lay a basis for this finding. The report for example does not pinpoint out the charges which in his view were erroneously levied, the various payments made by the Plaintiff and how the figure of Kshs 406,114. 60 being the alleged overpayment was arrived at. In my view an expert opinion in a case of this nature must be based on evidence and the evidence relied upon must be set out with sufficient particularity and reasonable degree of precision in order to make his deductions plausible. With due respect to PW2, his report in this case was more abstract than factual and cannot be the basis for arriving at the conclusion that there was an overpayment to the tune of the sum stated therein. The witness has for example not indicated the outstanding amount before the Plaintiff paid the said Kshs 1,500,000. 00 in order to conclude that the amount fully settled the arrears admitted by the Plaintiff and placed the account in a credit balance. In this respect I associate myself with the views of Ogola, J in Kenya Commercial Bank Limited vs. Rupa (K) Limited & 2 Others [2014] eKLR where he expressed himself as hereunder:

“What I have not agreed with, however, is the recalculation by the IRAC witness which stated that the 1st Defendant had overpaid the bank by Kshs.339,466/= and which led to their claim of the Kshs.3,386,863. 16 in the counterclaim. There was absolutely no proof that the Defendant had overpaid the claim.  Indeed, the only evidence of clear payment by the Defendant were three cheques which were deposited and never reduced the account. These cheques amounted to Kshs.118,253. 95.  The other payments which were not expressly determinable on the statement of accounts but which I inferred on account of evidence were payment of Kshs.100,000/= by M/s Crop Care Limited and a further Kshs.50,000/= by the 2nd Defendant.  All these payments, after giving the Plaintiff the benefit of the doubt in the above two later payments, amounted to a maximum sum of Kshs.268,253. 95.  This was the maximum amount ever paid by the Defendants, against a claim of Kshs.770,000/- as at 1st September 1997.  Where, then, is the evidence that the Defendants had overpaid the claim? The testimony and the Report by Mr. Onono of IRAC, apart from shedding light in relation to applicable Gazette Notices on interest rates during the relevant period was very unrealistic.  Regardless of what mathematical accounts may suggest, they must conform to reason.  No one can reap from where they have not sowed.  For the Defendants to claim that they overpaid the account, without providing the actual entries or evidence of payment, and without showing at what period in time the account balanced and then tilted into over payment, is acting in bad faith.  The Defendants were obligated to prove a series or systematic record, of payments, leading to overpayment, leading to a claim of Kshs.3,386,863. 16.  The IRAC witness cannot treat the court to calculation of interest rates alone, without showing the actual deposits in cash or in cheque which the Defendants made during that period. If the Defendants themselves cannot show any proof of actual payments – save the said three cheque deposits, and the persuasion  that some money, which was not reflected in the accounts amounting to Kshs.150,000/= was paid on their behalf - from where then will the IRAC witness manufacture deposit entries to reach the conclusion in their Report"  It is clear to me that the Defendants have taken advantage of the fact that the Plaintiff did not keep proper records of the account, and they have exploited this to the maximum.  But to go beyond, and make a counter-claim as stated above is quite simply unreasonable. Even for experts in accounts, it looks a proposition out of this universe. I totally reject it, except to acknowledge that the Defendants mounted a good defence and counter claim which has made an enormous difference in the outcome of this case, as I have understood it.”

78. In this case neither the Plaintiff nor his witness adduced credible evidence on which one could find that he had fully repaid the amount due from him to the Defendant and that he had in fact overpaid. This issue must be answered in the negative and as the answer to this issue takes care of issues 4 and 5 similar fate befalls the said issues.

79. Issues numbers 2 and 6 can be dealt with together. They are whether  there an erroneous debiting of Kshs.268,363. 67 on the plaintiff’s mortgage account on the 25th February 1999 and whether this amount was refunded by the Defendant and whether on account of a faulty computer program and/or software, the Defendant loaded the Plaintiff’s mortgage account with illegal and erroneous penalty and default charges. It was admitted by the Defendant that due to the change in computer software certain hiccups were experienced within the banking system and that affected the Plaintiff’s account. However this problem was solved. In fact going by the report of PW2, on 25th February, 1999 a refund was made by the Defendant relating to “arrears erroneously charged”. It is therefore clear that in this instance, corrective measures were taken to rectify the situation. There is no other evidence that the same error was repeated. Whereas PW2 in his report stated that the it would appear that the problem that caused the erroneous charges in the Plaintiff’s account was not rectified and that the Defendant continued to make similar charges in the Plaintiff’s account, this was a bare statement without attempt to particularise these charges. In Maria Ciabaitaru M’mairanyi & Others vs. Blue Shield Insurance Company Limited Civil Appeal No. 101 of 2000 [2005] 1 EA the Court of Appeal held that whereas under section 107 of the Evidence Act, (which deals with the evidentiary burden of proof), the burden of proof lies upon the party who invokes the aid of the law and substantially asserts the affirmative of the issue, section 109 of the same Act recognises that the burden of proof as to any particular fact may be cast on the person who wishes the Court to believe in its existence. Both under section 107 and 109 of the said Act, it was upon the Plaintiff to prove by way of credible evidence that the erroneous charges continued being levied after the said refund. There is no such evidence. Accordingly, these two issues must similarly be in the negative.

80. That brings me to issue number 3 as to whether the Plaintiff’s mortgage account was in arrears of Kshs.57,039. 15 against a loan balance of Ksh.506,092. 65 as on 18th November, 2002. The general rule in these kinds of matters was stated in Amalo Company Limited vs. Standard Chartered Bank (K) Limited Nairobi (Milimani) HCCC No. 571 of 2002 where Mbaluto, J held that:

“Where the defendant annexes to its affidavit statements of accounts, and there is no credible response from the plaintiff to counter the same, the Court is by virtue of the provisions of section 176 of the Evidence Act obliged to accept on a prima faciebasis, the figures contained in the said statement of account as correct.”

81. This was the position of the Court of Appeal in Ng’ayo Traders Ltd. vs. Savings & Loan (K) Ltd Civil Application No. Nai. 165 of 2005where it was held that:

“Under section 176 of the Evidence Act a copy of an entry in the bank book is prima facieevidence of such entry and of matters, transactions and accounts thereon.”

82. The statements of accounts were exhibited in this case. Apart from the statements there were correspondences emanating from the Plaintiff not only acknowledging default in repayment but seeking indulgence as well. Those statements taken together with the said acknowledgments of indebtedness are prima facie evidence of their contents. It was upon the Plaintiff to rebut the same but he failed to do this in my opinion.

83. The law with respect to interests and penalties was restated in Housing Finance of Kenya Limited vs. Ann Njoki Kuria Nairobi (Milimani) HCCC No. 187 of 2002 where it was held that:

“The Defendant appended to the Mortgage Agreement in the presence of Counsel and as provided under the Mortgage, the Defendant covenanted “to pay to the Lender…and discharge all moneys and liabilities…due and owing to the Mortgagee”. It is clear as day that the Defendant’s liability to the Plaintiff was not capable of being discharged after the sale of Mortgaged (suit) property in the exercise of the Mortgagee’s statutory power of sale. The Defendant’s argument that she had not entered into a “personal guarantee” over the Mortgage loan, and that the Plaintiff should have recovered all the debt due from the sale proceeds, was foreign to their clearly worded contract. The Plaintiff was entitled to recover the entire Mortgage debt together with all charges, interests, costs and incidentals arising therefrom, from the defendant. As the Mortgage debt was not fully recovered from the proceeds of the suit property, the plaintiff was entitled to recover the short fall of the debt from the Defendant’s and it was therefore the Plaintiff’s right to sue the Defendant to recover the debt.”

84. Specifically dealing with interests and other charges, it was held in Orion East Africa Ltd vs. Housing Finance Co. of Kenya Ltd Nairobi HCCC No. 914 of 2001 where the learned Judge expressed himself as follows:

“When any loan account goes into arrears, penalty interest is normally chargeable and in this case, even going by the letter of 27th May,1998, I have referred to hereinabove, this account went into arrears and cannot be said to have been properly serviced. Penalty interest was therefore called for and I cannot see any valid complaint on that. As to charging of interest rate that were not part of the agreement, the Applicant did sign the charge through its Director and Director/Secretary on 18th March, 1997. ”

85. I agree with the decision of the Court of Appeal in Husamuddin Gulamhussein Pothiwalla Administrator, Trustee and Executor of The Estate of Gulamhussein Ebrahim Pothiwalla vs. Kidogo Basi Housing Corporative Society Limited and 31 Others Civil Appeal No. 330 of 2003 that:

“A court of law cannot re-write a contract between the parties. The parties are bound by the terms of their contract, unless coercion, fraud or undue influence are pleaded and proved. There was not the remotest suggestion of coercion, fraud or undue influence in regard to the terms of the charge. It is clear beyond peradventure that save for those special cases where equity might be prepared to relieve a party from a bad bargain, it is ordinarily no part of equity’s function to allow a party to escape from a bad bargain.”

86. In the absence of any credible evidence to the contrary the contents of the bank statements exhibited together with the correspondences from the Plaintiff acknowledging indebtedness must be taken on a balance of probability to true status of the Plaintiff’s account with the Defendant.

87.  I accordingly find that the Plaintiff’s account was in arrears.

88.  Having disposed of the above issues, it follows that nothing turns on the issue whether or not the Plaintiff demanded from the Defendant a refund of the amount allegedly overpaid, discharge of the mortgaged property, a return of the title documents and/or gave notice of intention to commence these proceedings.

89 In the result the Plaintiff is not entitled to the orders sought herein.

Order

90. In the result, this suit is unmerited. The same fails and is dismissed with costs to the Defendant.

91. For avoidance of doubt the injunctive orders issued herein on 20th November, 2006 are hereby discharged.

92. Orders accordingly.

Dated at Nairobi this 1st day of November, 2017

G V ODUNGA

JUDGE

Delivered in the presence of:

Miss Agwata for Mr Issa for the Defendant

Mr Majani for Mr Kilukumi for the Plaintiff

CA Ooko