Housing Finance Company of Kenya v John Silas Lenana Ole Puleiy
The bottom line
#Kenya's Court of Appeal cut a borrower's award from Kshs. 5.9 million to Kshs. 5.39 million, but confirmed banks cannot charge penalties not in the mortgage contract.
What this practically means
#Executive summary
#Key legal issues
#Lawfulness of default penalty charges and interest not provided for in the charge documents
The default penalty charges and interest were levied irregularly, illegally, unlawfully and wrongfully, being neither provided for in the charges nor sanctioned by the Minister for Finance under section 44 of the Banking Act read with section 39 of the Central Bank of Kenya Act
The appellant did not deny that the levied charges were not provided for in the two charge instruments, nor that they were levied. Its explanation of custom and usage in the mortgage industry was unsupported by any evidence and could not, even if proved, prevail over express statutory provisions. The exercise of the statutory power of sale was therefore unjustified.
Whether the trial judge erred in accepting PW3/IRAC evidence as expert opinion
No error - the trial judge had justifiable reasons for accepting PW3's evidence, which was uncontroverted, and expert opinion is not binding on a court which may accept it if satisfied it is sound
Unlike the Rupa case where the IRAC report was rejected for lack of consultation and insufficient data, here there was a valid contract not allowing arbitrary variation, the underlying documents were unchallenged, and PW3's expertise was not controverted by any contrary expert evidence.
Strict proof of special damages
The claim was sufficiently pleaded with particularity and proved; the amounts were supported by uncontroverted evidence rather than plucked from the air
The amended plaint pleaded the claim with sufficient particularity to put the appellant on notice; the respondent tendered a valuation report and IRAC's reconciliation report, and the testimony on professional fees was believable and unchallenged by the appellant, who called no contrary valuer.
Valuation of the suit property and the forced-sale discount
The trial judge erred in failing to factor in the 20% discount for forced sale value, reducing the compensation for loss of the property; the eleven-month delay in valuation and the date discrepancy were immaterial
PW2 gave the market value at the date of auction less 20% forced-sale discount; the variance in valuation dates was a typographical error not going to the root of the evidence, and the appellant did not call its own valuer to justify its lower pre-auction valuation.
The appellant's counterclaim for the shortfall
The dismissal of the counterclaim stands because it was not proved, although the trial judge misdirected herself in holding that the lending contract terminated on realization of the security
The appellant pleaded and tendered only a figure with no explanation of how it was arrived at, and its attempt to justify the figure first in appellate submissions came too late. The misdirection on termination of the contract did not affect the outcome since the counterclaim was in any event unproved.
Legal principles established
#- A claim for special damages must be specially pleaded, particularised and strictly proved
- Parties are bound by the terms of contracts they willingly and voluntarily enter into, and courts will not rewrite contracts
- On a first appeal, the Court of Appeal re-appraises the evidence and reaches its own independent conclusions but will not interfere with a trial judge's findings of credibility absent misdirection
- A court cannot base its decision on unpleaded grounds; parties are bound by their pleadings
Court orders
#- 1.Appeal allowed only to the extent that the 20% forced-sale discount should have been factored into the compensation for loss of the suit property
- 2.Respondent's claim affirmed as against the appellant in the total sum of Kshs. 5,386,601.45 with interest as awarded by the High Court
- 3.Order of the High Court on costs left undisturbed
- On appeal from
- High Court of Kenya at Nairobi
- H.C.C.C. No. 144 of 2003
- Jurisdiction invoked
- First appeal under Rule 29(1) of the Court of Appeal Rules - appellate re-appraisal of evidence
Key timeline
#Practical implications
#Frequently asked questions
#Cite this brief
#Cite this brief
Caselaw, "Housing Finance Company of Kenya v John Silas Lenana Ole Puleiy", Case Analysis (2019). Civil Appeal No. 206 of 2010. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2019/506/eng@2019-07-19
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.