Francis Wainaina v Kenya Commercial Finance Company Limited [1995] KECA 132 (KLR)
The bottom line
#Kenya's Court of Appeal ruled you can't terminate a hire-purchase agreement just by returning the equipment — and lenders can't charge interest unless the contract says so.
What this practically means
#Executive summary
#Key legal issues
#Proper termination of the lease-hire agreement
The appellant did not terminate the agreement; termination was permissible only under clause 7 by payment of the total rentals less rentals previously paid, which was never done, so he remained liable for the unpaid rentals of Shs 190,956.70
The agreement allowed the lessee to terminate at any time only by paying the total rental less rentals previously paid, whereupon property reverted to the owner. Delivery of the equipment under clause 9, even if properly done, was not termination. Since the appellant never paid the balance of rentals, the respondent was entitled to invoke clause 8(viii) on repossession for default and claim the agreed compensation being the difference between the total rental and rentals paid.
Whether interest at 14% could be charged on unpaid rentals
The agreement contained no provision for interest on unpaid rentals and none could be implied; the respondent's unilateral charging of 14% interest was wrongful and the High Court erred in endorsing it
The agreement was one for rental of equipment, under which breach gave rise only to calculable agreed compensation, with no provision for interest. The respondent's evidence sought to recast the transaction as a loan, which it was not, and no trade practice was proved whereby unpaid rentals are converted into interest-bearing loans. Clause 8(viii) limited the respondent's remedy to the agreed compensation, and any interest could only be awarded by the court under section 26 of the Civil Procedure Act.
Exercise of discretion to award interest under section 26 of the Civil Procedure Act
The judge wrongly exercised her discretion by awarding interest at 14%, a rate never sought, without giving reasons; interest should have been awarded at the rate asked for, i.e. court rates
Following its earlier decision in Shariff Salim and Simbarite Ltd v Malundu Kikava, the Court held that although a trial judge's discretion on interest is wide, reasons must be ascertainable. Here the judge awarded 14% when the respondent had sought only interest at court rates, and gave no reasons. Analogous to the earlier case where the judge's unexplained award was held a wrong exercise of discretion, interest should at least have been at the rate asked for.
Legal principles established
#- Where an agreement makes no provision for the charging of interest on amounts outstanding for breach, a party (even a finance company) cannot unilaterally charge interest on unpaid rentals, nor can such charging be implied absent evidence of accepted trade practice
- A lessee may terminate a lease-hire agreement only in the manner prescribed by its termination clause, by paying the total rentals less amounts previously paid; mere delivery up of the equipment does not effect termination
- A trial judge's wide discretion under section 26 of the Civil Procedure Act to award interest must be exercised with reasons; awarding a rate of interest other than that asked for, without reasons, is a wrong exercise of discretion
Court orders
#- 1.Judgment for the respondent in the sum of Shs 190,956.70 together with interest thereon at 14% from the date of filing the suit to the date of judgment
- 2.Further interest on that sum at court rates from the day of judgment until payment in full
- 3.Costs of the suit and of the appeal to the respondent
- On appeal from
- High Court of Kenya at Nairobi
- HCCC No 2539 of 1981
- Jurisdiction invoked
- First appellate jurisdiction of the Court of Appeal over the High Court (appeal as of right against the High Court judgment)
Key timeline
#Practical implications
#Frequently asked questions
#Cite this brief
#Cite this brief
Caselaw, "Francis Wainaina v Kenya Commercial Finance Company Limited [1995] KECA 132 (KLR)", Case Analysis (1995). Civil Appeal No 116 of 1987. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/1995/132/eng@1995-03-14
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.