Muiruri (Being the administrator of the Estate of the Late Joseph Muiruri Gachoka - Deceased) v Bank of Baroda (Kenya) Ltd (Civil Appeal 282 of 2004) [2014] KECA 319 (KLR)

While Section 108 of the Evidence Act embodies the general rule that he who asserts must prove, Section 112 places the burden on the party in whose knowledge the fact especially lies. Whether the bank sought the Minister's approval before raising interest was a fact peculiarly within the bank's knowledge, and Section 44 itself enjoins the bank to seek approval. The bank's witness conceded ignorance of compliance, and no evidence of approval was produced, so on the face of it the increases were not in accordance with the law.

Following Paragon Finance, the court held that a power to set interest rates is subject to an implied requirement that it be exercised fairly and not arbitrarily, capriciously or unreasonably. The interest rose from 14% to 45% without notice to the appellant, with no indication of the circumstances necessitating the increase, amounting to a whimsical decision. The borrower ought to be informed of adverse variations so as to assess the relationship or terminate the contract.

The accounts would have answered fundamental questions about the amounts advanced, the interest applied, repayments made and the balance outstanding. The statements produced were indecipherable and wanting, and the bank's own witness could not state amounts drawn or repaid. By the year 2000 the bank was under an obligation to provide clear, true accounts of all charges and rates. The prayer for accounts ought to have been granted.

Drawing on domestic and comparative authority (Housing Finance v Njuguna; KCC Finance v Ngeny; Amadio; Cityland v Dabrah; Chua v Timann), the court found the appellant, a widow who had lost her husband and business, was at a situational disadvantage. The interest surcharge rendered the debt astronomical, precluding any equitable right of redemption, effectively enslaving her. Courts will set aside bargains that are harsh, unconscionable and oppressive.

Relying on Manulife Bank of Canada v Conlin, the court observed that any material variation prejudicial to the guarantor and made without consent discharges the guarantor; an increase in interest rate is a material change. Since the variation of interest rates was undisputedly done without notice to the appellant and her late husband as guarantors, the principle may well apply in this matter.

Citing National Bank of Kenya v Pipeplastic Sankolit, the court affirmed that parties are bound by the terms of their contract. However, equity intervenes to relieve a party of conditions that are harsh, unconscionable and oppressive or where additional terms are imposed after agreement. The exception operates where contract terms are unduly harsh, commercially unreasonable and grossly unfair.