Matthew Kyalo Mbobu & 1 other v Hypac Investments Limited & 1 other

5. In the premises, the Plaintiffs in their Amended Plaint dated 13th June 2024, seek the following prayers: a. A declaration that the interest of 15% p.m. on a flat rate together with late payment penalty of 5% per week on the installment arrears over and above the interest rate of 15% per month as contained in the offer letter dated 27th January 2021 are illegal and unconscionable and thus unenforceable in law. b. A declaration that the contract entered into on 27th January 2021 between the 1st plaintiff and the defendant is null and void ab initio and thus unenforceable in law. c. An order directing that the defendant do refund the 1st plaintiff the sum of Kenyan Shillings thirteen million six hundred thousand (KES 13,600, 000) paid over and above the amount originally borrowed. d. An order compelling the defendant to sign transfer instruments for the land parcel known as Title Number I.R. 83020 Land Reference Number 15065/64 (original number 15065/47/1) in favour of the 2nd plaintiff. e. A declaration that the charge created over and registered against land parcel known as Title Number I.R. 83020 Land Reference Number 15065/64 (original number 15065/47/1) on 28th May 2021 by the 1st defendant in favour of the 2nd defendant is irregular, illegal, invalid and thus void and unenforceable in law. f. An order of mandatory injunction compelling the 2nd defendant to unconditionally discharge the land parcel known as Title Number I.R. 83020 Land Reference Number 15065/64 (original number 15065/47/1). g. An order of permanent injunction directed at the defendant, its agents, servants, employees or any person acting under its instructions restraining them from selling, disposing of, alienating, transferring, subdividing, charging or in any manner whatsoever interfering with the land parcel known as Title Number I.R. 83020 Land Reference Number 15065/64 (original number 15065/47/1). h. An order of permanent injunction directed at the defendant, its agents, servants, employees or any person acting under its instructions restraining them from trespassing onto, evicting, preventing entry onto or in any manner whatsoever interfering with the applicants’ quiet possession of land parcel known as Title Number I.R. 83020 Land Reference Number 15065/64 (original number 15065/47/1). i. Costs of the suit. 6. In support of their case, the Plaintiffs relied on one witness, Mathey Kyalo Mobu, the 1st Plaintiff herein, who testified as PW1 and adopted his filed witness statement dated 3rd April 2023 as his evidence in chief. The witness produced as exhibits the documents in the list of documents dated 3rd April 2023 in support of the Plaintiffs’ case. 7. PW1, who is also a director of the 2nd Plaintiff, told Court that he was at all material times the registered owner of the suit property developed with residential premises where he resides with his family. He further told Court that in January 2021, owing to financial challenges occasioned by the COVID-19 pandemic, he sought a loan of Kshs. 11,000,000/- from the 1st Defendant, which loan was advanced following a letter of offer dated 27th January 2021. The loan term was for a period of six (6) months https://new.kenyalaw.org/akn/ke/judgment/kehc/2025/16564/eng@2025-10-09 2

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at an interest rate of 15% per month and a late payment penalty of 5% per week. Additionally, the Plaintiffs secured the loan by a transfer of the suit property. 8. The witness informed Court that he accepted the offer and caused the transfer of the suit property to the 1st Defendant on the understanding that it would be re-transferred upon full repayment. 9. It was further the witness’s testimony that in performance of the agreement, he repaid a total of Kshs 24,600,000, yet the Defendant issued a demand dated 24th March 2023 for Kshs 69,495,599, computed on compound interest not provided for in the contract and inclusive of unconscionable penalties. He stated that the loan statement was inaccurate as it failed to account for his repayments. 10. He averred that the loan terms were, however harsh, oppressive, and unconscionable, the Defendant having taken advantage of his financial distress. He was of the view that the loan terms were deliberately intended to unduly clog his right of redemption of the security. 11. Mr. Mbobu contended that the Defendant was likely to sell or dispose of the suit property on the basis of the inflated and improperly computed claim, to the detriment of the Plaintiffs. He asserted that unless restrained, the Defendant’s actions would cause loss to the Plaintiffs and unjustly enrich the Defendant. 12. The witness told Court that during the subsistence of the loan agreement, and before the lapse of the six-month contractual repayment period, He later learnt that the 1st Defendant, without any notice as provided under the loan agreement, created a Charge over the suit property in favour of the 2nd Defendant, thereby breaching the terms of the loan agreement. 13. Mr. Mbobu therefore prayed for declarations that the loan terms were illegal and unenforceable, a refund of Kshs 13,600,000/- allegedly overpaid. He also sought an order for the re-transfer of the suit property to the Plaintiffs. The 1st Defendant’s case 14. The 1st Defendant filed a statement of defence dated 5th September 2024, in which it denied the Plaintiffs’ claims, particularly the allegations by the Plaintiff that the loan terms were harsh, oppressive, and unconscionable. 15. The 1st Defendant further denied the Plaintiffs’ contention that the transfer of the suit property to its name and subsequent creation of a Charge over the same in favour of the 2nd Defendant was irregular, illegal, invalid, and thus void and unenforceable in law. 16. The 1st Defendant therefore maintains that the Plaintiffs’ suit is devoid of merit and amounts to an attempt to avoid lawful contractual obligations. 17. It is the 1st Defendant’s case that the 1st Plaintiff, an Advocate of the High Court of Kenya, approached the 1st Defendant for a loan of Kshs. 11,000,000 and willingly executed the agreement dated 27th January 2021. The 1st Defendant confirmed that the loan agreement provided that the interest rate was 15% per month on a flat rate basis and a 5% weekly penalty in case of default. Further, as security for the loan, the Plaintiffs duly executed a transfer of the suit property on 28th January 2021 in favour of the 1st Defendant, who thereafter paid stamp duty, thereby acquiring a valid title. 18. The 1st Defendant therefore maintained that, having become a duly registered proprietor of the suit property, he lawfully acquired absolute ownership rights under Sections 24, 25, and 26 of the Land Registration Act, including the right to create a legal Charge in favour of the 2nd Defendant. It was the position of the 1st Defendant that the Charge was duly registered, consented to, and procedurally valid. https://new.kenyalaw.org/akn/ke/judgment/kehc/2025/16564/eng@2025-10-09 3

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19. In support of its case, the 1st Defendant called one witness, Alex Mutuku Mbelenzi, a director of the 1st Defendant, who testified as DW1 and adopted his witness statement dated 5th September 2024 as his evidence in chief. DW1 told Court that the 1st Plaintiff applied and voluntarily executed the facility agreement dated 27th January 2021, and the Plaintiffs are therefore bound by its terms as to the payment of interests, including the default penalty clause. 20. The witness testified that the 1st Plaintiff voluntarily executed a transfer of lease on 28th January 2021, and the 1st Defendant paid Kshs. 1,200,000 stamp duty, thereby acquiring a valid title to the suit property. 21. It was his testimony that the Plaintiffs defaulted on repayment by 27th July 2021, whereupon penalties accrued to Kshs 54,000,000/-. Following reminders, a meeting on 17th December 2021 resolved that the Plaintiffs pay Kshs 21,000,000 immediately and Kshs. 9,000,000 by October 2022, with a waiver of Kshs. 24,000,000, failing which the original terms would apply. Mr. Mbelenzi told Court that by a letter dated 20th December 2021, the 1st Plaintiff confirmed his agreement to the renegotiated terms, and that on 22nd December 2021, he paid Kshs. 21,000,000, leaving a balance of Kshs. 9,000,000. 22. He added that the 1st Plaintiff later obtained a further loan of Kshs 2,000,000 under another letter of offer dated 9th May 2022, which was repaid with Kshs. 600,000 in interest. However, in breach of the renegotiated terms, the Plaintiffs failed to pay the balance of Kshs. 9,000,000 from the initial loan, thereby triggering penalties. 23. DW1 further stated that following the default on the part of the Plaintiffs to pay the balance of Kshs. 9,000,000/- by October 2022, the Respondent on 1st January 2023 demanded a sum of Kshs. 61,300,519/-. The witness asserted that the amount demanded included interest and penalties as of 5th February 2023, calculated on the balance of Kshs. 9,000,000/-. 24. The witness stated that the Plaintiffs, having failed to liquidate the debt, the 1st Defendant, through its advocates, on 8th February 2023, issued a formal demand to the Plaintiffs. Upon receipt of the demand, the 1st Plaintiff, vide a letter dated 9th February 2023, disputed the quantum of Kshs. 61,300,519, but admitted a sum of Kshs. 24,908,509.07/- as the amount outstanding. 25. The witness further stated that despite the Plaintiffs’ aforesaid admission, no payment was made by the Plaintiffs towards the debt, save for Kshs. 1,000,000/-, which was made on 22nd March 2023, leaving an outstanding sum of Kshs. 69,495,599.47. 26. DW1 maintained that as at the date of the demand, the Plaintiffs had only repaid a total of Kshs. 22,000,000, towards the initial loan, leaving a balance of Kshs. 69,495,599.47. He denied that there was any coercion, duress, or fraud, noting that the 1st Plaintiff, being an advocate, signed the agreement knowingly. 27. The witness further told court that the legal charge registered over the suit property in favour of the 2nd Defendant was lawfully pursuant to section 56 of the Land Registration Act and duly executed by the 1st Defendant in its capacity as registered proprietor. He stated that there was no requirement for notice since the Plaintiffs were already in default and had waived any rights to further notice under the agreement. 28. The witnesses prayed that the Plaintiffs’ suit be dismissed with costs for being frivolous, vexatious, and an abuse of process. According to him, the 1st Defendant held a clean and valid title, and lawfully exercised its rights as proprietor to charge the property in favour of the 2nd Defendant. https://new.kenyalaw.org/akn/ke/judgment/kehc/2025/16564/eng@2025-10-09 4

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The 2nd Defendant’s case 29. The 2nd Defendant, Family Bank Limited, filed a statement of defence dated 6th September 2024 and opposed the Plaintiffs’ claim, stating that it was a stranger to the loan arrangement between the Plaintiffs and the 1st Defendant, to which it was not privy. 30. It pleaded that the 1st Defendant had obtained various banking facilities from it, consolidated into an offer of Kshs. 27,000,000 dated 29th September 2021. The facility was secured by a legal charge over the suit property L.R. 15065/64. That, upon due diligence, the charge was lawfully registered. 31. It is the 2nd Defendant’s case that the 1st Defendant defaulted in repayment of the loan facility, leading to the bank exercising its statutory power of sale. The bank maintained that it was entitled to do so by virtue of its registered charge. 32. The 2nd Defendant contended that the charge was validly executed and all procedures were followed. It denied any irregularity, illegality, or invalidity, noting that the property was at the time of creation of the Charge, registered in the 1st Defendant’s name, to whom the funds were directly disbursed. The 2nd Defendant maintained that the Plaintiffs had no rights under the charge instrument. It emphasized that any dispute lies solely between the Plaintiffs and the 1st Defendant, and not against the bank. 33. The 2nd Defendant contended that restraining it from exercising its power of sale would cause substantial loss, and that proceedings on the same subject matter were already pending in Nairobi HCCCOMM No. E512 of 2023, where the 1st Defendant has challenged the 2nd Defendant’s exercise of Statutory Powers of sale. It therefore prayed that the suit by the Plaintiffs be dismissed with costs. 34. In support of its case, the 2nd Defendant called one witness, Joseph Rukwaro Wanjohi, its relationship officer at the Ngong Road Branch. He testified as DW2, and adopted his witness statement is dated 6th September 2024, as his evidence in chief. 35. The witnesses essentially restated the 2nd Defendant’s position as captured in its defence. He confirmed that the 2nd Defendant advanced to the 1st Defendant a loan facility of Kshs. 30 million on 14th April 21 secured by a legal charge over LR No. 15065/64 and Apartment No. C07 on LR No. 3734/419, which was later restructured into a Kshs. 27 million facility, secured by the same properties and a motor vehicle. 36. According to the witness, the 1st Defendant defaulted in repayment, prompting the 2nd Defendant to issue statutory notices and commence recovery, which was stopped by interim injunctive orders in Nairobi MCCCOMMSU No. E512 of 2023, a suit instituted by the 1st Defendant. 37. Mr. Wanjohi maintained that the bank acted lawfully in exercising its rights under the charge, that the Plaintiffs have no enforceable rights against it, and that continued default is causing loss and accruing interest. He asserted that the suit by the Plaintiffs lacks merit and should be dismissed to allow the bank to recover its liabilities. 38. Following the conclusion of the hearings, directions were taken as to the filing of submissions. The Plaintiffs filed submissions dated 14th April 2025, whilst the 1st and 2nd Defendants filed theirs dated 16th May 2025 and 7th May 2025 respectively. Plaintiff ’s submissions 39. In their joint submissions, the Plaintiffs generally restated their position as in the pleadings. The Plaintiffs maintained that the loan facility was tainted with illegality and unconscionable terms. https://new.kenyalaw.org/akn/ke/judgment/kehc/2025/16564/eng@2025-10-09 5

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According to the Plaintiffs, the 15% monthly interest rate was oppressive, extortionate, and offended Article 46 of the Constitution and the Consumer Protection Act. 40. Relying on, among others, the cases of CIS v Crawford International School [2020] eKLR, LTI Kisii Safari Inns Ltd v DEG [2011] KECA 1, and Margaret Njeri Muiruri v Bank of Baroda [2014] KECA 319, the Plaintiff urged this Court to find that the loan facility agreement, particularly as it relates to the 15% monthly interest rate and 5% weekly penalty interest penalty clauses, unconscionable and therefore unenforceable. 41. It was further their case that the interest and penalty clauses were in contravention of the in duplum rule, which limits recoverable interest to an amount not exceeding the principal sum. Citing the cases of Karanja v Molyn Credit Ltd [2024] KEHC 10178 and Jelangant v Mwananchi Credit Ltd [2023] KEHC 19922, they contended that the in duplum principle, although codified in Section 44A of the Banking Act, embodies the principle of fairness and equity, and therefore applies broadly to all lenders, not just financial institutions. 42. On the validity of the Charge, the Plaintiffs submitted that the Charge created by the 1st Defendant in favour of the 2nd Defendant over the suit property was done without the 1st Defendant first issuing the requisite 21-day notice of default as stipulated under the loan agreement. This omission, the Plaintiffs argued, rendered the Charge irregular, illegal and void. 43. The Plaintiffs maintained that having already repaid a total of Kshs. 22,000,000, being twice the principal, the loan was fully satisfied by operation of the in duplum rule. Consequently, the demand for Kshs. 69,495,599 as outstanding arrears was unlawful. 44. The Plaintiffs therefore prayed for declarations nullifying the loan agreement and the Charge in favor of the 2nd Defendant, a refund of Kshs. 13,600,000, allegedly overpaid, injunctive reliefs restraining interference with the suit property, and in the alternative, execution of retransfer documents to the 2nd Plaintiff by the Deputy Registrar. 1st Defendant’s Submissions 45. Counsel for the 1st Defendant, on the other hand, submitted that the Plaintiffs’ case is devoid of merit and amounts to an attempt to evade lawful contractual obligations. According to Counsel, the 1st Plaintiff, being an Advocate of the High Court of Kenya, voluntarily executed the loan agreement, which clearly stipulated the principal amount advanced (Kshs. 11,000,000), at an interest rate of 15% per month on a flat rate basis and a 5% weekly penalty in case of default. Further, the Plaintiffs voluntarily executed a transfer of the suit property to the 1st Defendant as security for the loan. 46. Relying on the doctrine of freedom of contract as reaffirmed in National Bank of Kenya Ltd v Pipeplastic Samkolit (K) Ltd & Another [2001] eKLR, Counsel argued that courts should not rewrite contracts voluntarily entered into by parties, especially where there is no evidence of coercion, duress, or undue influence, as is the case herein. 47. Counsel pointed out that through the testimony of DW1, the 1st Defendant proved that the Plaintiffs defaulted on repayment despite reminders and renegotiation efforts. That the Plaintiffs’ indebtedness to the 1st Defendant stood at Kshs. 69,495,599, as of 24th March 2023. 48. Counsel maintained that the 1st Defendant, having acquired absolute ownership of the land, was vested with absolute ownership rights under Sections 24, 25, and 26 of the Land Registration Act, including the right to create a Charge in favour of the 2nd Defendant. https://new.kenyalaw.org/akn/ke/judgment/kehc/2025/16564/eng@2025-10-09 6

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49. Consequently, Counsel maintained, the Charge was properly executed, consented to, and duly registered. That, in any event, no evidence of fraud or illegality had been adduced by the Plaintiffs impeaching the title. It was further submitted that the Plaintiffs, not being parties to the contractual arrangement between the 1st and 2nd Defendants, could not, in law, challenge the validity of the Charge by the 1st Defendant in favor of the 2nd Defendant. 50. Counsel for the 1st Defendant therefore urged the Court to dismiss the Plaintiffs’ suit with costs, maintaining that it had acted lawfully and within its contractual and proprietary rights. The 2nd Defendant’s Submissions 51. Counsel for the 2nd Defendant generally associated itself with the submissions of the 1st Defendant, maintaining that it was an innocent chargee for value who advanced funds to the 1st Defendant on the strength of a duly registered Charge. Relying on the case of Mark Otanga Otiende v Dennis Oduor Aduol [2021] eKLR, it was reiterated that the 2nd Defendant was not a party to the loan agreement between the Plaintiffs and the 1st Defendant, and was therefore not bound by its terms, including the alleged unconscionability. 52. According to Counsel for the 2nd Defendant, the Charge over Title No. I.R. 83020 / L.R. No. 15065/64 was executed by the 1st Defendant as the registered proprietor, and that the 2nd Defendant’s interest was therefore legally protected under Sections 24, 25, and 26 of the Land Registration Act. Counsel maintained that there was no privity of contract between the 2nd Defendant and the Plaintiffs. 53. Relying on the case of Law Society of Kenya v Center for Human Rights & Democracy & 12 Others [2014] eKLR among others, it was argued on behalf of the 2nd Defendant that the interest acquired through a duly registered instrument, as is the case herein, cannot be impeached except on grounds of fraud or misrepresentation, which in this case have not been adduced and/or proved. 54. Counsel concluded by asking this Court to uphold the validity of its Charge, and dismiss the Plaintiffs’ suit with costs in its favour. Analysis and determination 55. Before I proceed to the substantive aspects of the case, it is only fair to mention that the Court learnt that during the pendency of this judgment, and after giving his testimony, the 1st Plaintiff, Mathey Kyalo Mbobu, passed away following a fatal shooting by unknown assailants. The Court notes this fact for record purposes and conveys its condolences to the bereaved family. The matter shall, however, proceed to determination, based purely on the law and evidence adduced by the parties. 56. Having considered the pleadings, evidence, and submissions by the parties, I find that the issues that arise for determination in this matter are as follows: a. Whether the loan agreement dated 27th January 2021 was illegal or unconscionable; b. Whether the Charge created in favour of the 2nd Defendant was valid and enforceable; and c. Whether the Plaintiffs are entitled to the reliefs sought. Whether the loan agreement dated 27th January 2021 was illegal or unconscionable 57. From the parties’ pleadings and evidence adduced, it is not in dispute that the 1st Plaintiff obtained a loan of Kshs 11,000,000/ from the 1st Defendant pursuant to a letter of offer dated 27th January 2021, which was signed by the 1st Plaintiff on 1st February 2021. The said letter is produced on pages 5-8 of the https://new.kenyalaw.org/akn/ke/judgment/kehc/2025/16564/eng@2025-10-09 7

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Plaintiff’s bundle of documents. The said letter, which was duly executed by the Plaintiffs, provided on the salient parts as follows:The loan amount was Kshs. 11,000,000/-, and that the 1st Plaintiff was to repay the loan within a maximum period of six (6) months.The loan was to attract an interest of 15% per month on a flat rate. Late payment would be charged at a rate of 5% per week on the installment arrears over and above the rate stated above.The 1st Plaintiff was to surrender title all that property known as Title No. I.R 83020 Land Reference Number 15065/64 (original number 15065/4 7/1) [the "suit property"] which was to be transferred to the 1st Defendant.In the event of default, the 1st Defendant was at liberty to resell and or in whatsoever manner deal with the suit property and the 1st Plaintiff would be entitled to a 21-day notice in the event of such a default.” 58. It is also not in dispute that subsequent to the offer letter, the 1st Plaintiff executed a transfer of lease dated 28th January 2021 over the suit property in favour of the 1st Defendant. The transfer is produced on pages 9-11 in the Plaintiffs' list of documents. 59. From the record, it is evident that the Plaintiffs were unable to adhere to the repayment terms in a timely manner. As per the Letter of Offer, the loan was to be repaid within a period of six (6) months (by 21st July 2021) at an interest rate of 15% per month and a weekly default penalty of 5%. However, as of 22nd March 2024, the Plaintiffs had only paid a total sum of Kshs. 22,000,000/- under the facility. 60. I also gather from the record that following the Plaintiffs’ default on the terms of the loan agreement, including the renegotiated terms, the 1st Defendant, vide a demand letter of 24th March 2023, sought immediate payment of the whole of the outstanding debt under the facility, which then stood at Kshs. 69,495,599.47/-, hence the present dispute. 61. The Plaintiffs contend that the loan facility advanced by the 1st Defendant was tainted with illegality owing to the exorbitant interest rate of 15% per month on a flat rate amounting to an annualized rate of over 180%, and on the basis of the 5% weekly penalty, amounting to an annualized rate of over 260%. The Plaintiffs urge that the terms were extortionate and contrary to Article 46 of the Constitution and the Consumer Protection Act. 62. The Plaintiffs maintained that this Court has the jurisdiction to infuse fairness into unconscionable contracts and relied on the Court of Appeal case of Margaret Njeri Muiruri v Bank of Baroda (Kenya) Limited [2014] KECA 319 (KLR), where the court held: “ 36. 63. . Nevertheless, courts have never been shy to interfere with or refuse to enforce contracts which are unconscionable, unfair or oppressive due to a procedural abuse during formation of the contract, or due to contract terms that are unreasonably favourable to one party and would preclude meaningful choice for the other party. An unconscionable contract is one that is extremely unfair. Substantive unconscionability is that which results from actual contract terms that are unduly harsh, commercially unreasonable, and grossly unfair given the existing circumstances of the case.” Reliance was further placed on the Court of Appeal decision in the case of LTI Kisii Safari Inns Ltd v DEG [2011] KECA 1, where the Court et out the test for unconscionability as follows: “ Unconscionable bargains (52) This is also an equitable doctrine. There are at least three prerequisites to the application of a doctrine, firstly, that the bargain must be oppressive to the extent that the very terms of the bargain reveals conduct which shocks the https://new.kenyalaw.org/akn/ke/judgment/kehc/2025/16564/eng@2025-10-09 8

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conscience of the court. Secondly, that the victim must have been suffering from certain types of bargaining weakness, and, thirdly, the stronger party must have acted unconscionably in the sense of having knowingly taken advantage of the victim to the extent that behavior of the stronger party is morally reprehensible.” 64. On its part, the 1st Defendant stated that parties are free to contract and are bound by the terms they mutually agree upon and cited the case of National Bank of Kenya Ltd v Pipeplastic Samkolit (K) Ltd & Another [2001] eKLR, where it was held that “A court of law cannot rewrite 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.” 65. I have keenly analyzed the parties’ arguments, including the authorities as cited by the parties’ respective Counsel on this issue. While it is correct, as argued by the 1st Defendant, that the law recognizes the principle of freedom of contract, as articulated in National Bank of Kenya Ltd v Pipeplastic Samkolit (K) Ltd & Another [2001] eKLR, it is equally correct that courts have similarly recognized that freedom of contract is not absolute and may be limited where the terms are unfair, unconscionable, or contrary to public policy as was stated by the Court of Appeal in the case of LTI Kisii Safari Inns Ltd v DEG [2011] KECA 1. 66. The Court of Appeal (PO Kiage, WK Korir, JM NGUGI), in its decision in the case of Dhiman v Shah [2025] KECA 1264 (KLR), cited with approval the principle in LTI Kisii Safari Inns Ltd v DEG (supra), and affirmed the position that where the terms of a contract are manifestly one-sided and oppressive and therefore unconscionable, the court has a duty to intervene to prevent exploitation. The Court stated as follows: “ In Kenya, the doctrine of unconscionability — though not always expressly named — is recognized and applied through general principles of equity, fairness, and public policy under the law of contract. In National Bank of Kenya Ltd v Pipeplastic Samkolit (K) Ltd & another [2001] eKLR, this Court emphasized that while courts do not interfere with parties’ freedom to contract, they will not enforce a contract that is "illegal, immoral, or unconscionable." 67. The doctrine of unconscionability in contract law has consistently been upheld by the Kenyan Courts to protect parties against contracts that are so unfair and oppressive as to offend the sense of justice. In Dhiman v Shah (supra), the Court of Appeal stated that the doctrine allows a court to refuse to uphold a contract, or specific terms of it, if they were imposed in a way that took undue advantage of one party’s vulnerability, ignorance, or lack of bargaining power. 68. In the present case, the interest rate of 15% per month, compounded with a 5% weekly penalty, translates to extraordinarily high annualized rates exceeding 400% when compounded. Such terms clearly fall within the definition of unconscionable conduct. The interest rate is undeniably excessive and manifestly oppressive, a figure that no reasonable borrower could sustain, and is, on the face of it, contrary to the principles of equity and fairness. 69. Whereas it is true that the Plaintiffs voluntarily executed the agreement, courts are not blind to the reality of inequality of bargaining power, especially in financial transactions involving urgent credit needs. The 1st Plaintiff’s status as an advocate does not, in my view, automatically neutralize such inequality or justify the enforcement of a contract whose terms would ‘shock the conscience of the court.’ https://new.kenyalaw.org/akn/ke/judgment/kehc/2025/16564/eng@2025-10-09 9

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70. The Court of Appeal in dealing with a substantially similar situation in the case of in the case of Dhiman v Shah (supra), found an unconscionable and disproportionate interest clause that was to result in a repayment of an amount exceeding Kshs. 69 billion from a principal loan of Kshs. 4,000,000/-, The Court stated that: “ This sum arises from the application of an annual interest rate of 36% compounded quarterly over a period of nearly three decades – the terms included in the parties’ agreement. It is not in question that this astronomical figure exceeding kshs. 69 billion on a principal sum of kshs. 4 million is a disproportionate escalation; it is not merely commercially unreasonable; it is, in the eyes of equity and good conscience, oppressive and unconscionable. As demonstrated above, courts in Kenya have consistently held that where the terms of a loan agreement result in punitive or extortionate financial consequences — particularly through excessive compounding over long durations — they may be struck down or moderated. This is because equity abhors oppression and refuses to enforce contractual provisions that shock the conscience of the court. In the present case, the sheer disparity between the original loan and the amount which would now be due evidences a contract whose enforcement, without judicial intervention, would undermine principles of fairness, good faith, and proportionality. We, therefore, find the contract between the parties void for unconscionability.” 71. Arising from the foregoing analysis, I find and hold that the loan agreement dated 27th January 2021 between the Plaintiffs and the 1st Defendant, to the extent of its interest and penalty clauses, was unconscionable and contrary to public policy. 72. Moreover, the Court is persuaded by the Plaintiffs' argument that the In duplum rule, though only codified in Section 44A of the Banking Act, embodies a principle of public policy that applies across lending transactions. The Rule is intended to protect borrowers from oppressive accumulation of interest, as is the case herein. In Mwambeja Ranching Company Limited & another v Kenya National Capital Corporation [2019] KECA 436 (KLR), the Court stated as follows on the role of the In duplum rule: “ The In duplum rule is concerned with public interest and its key aim was to protect borrowers from exploitation by lenders who permit interest to accumulate to astronomical figures. It was also meant to safeguard the equity of redemption and safeguard against banks making it impossible to redeem a charged property. In essence, a clear understanding and appreciation of the in duplum rule is meant to protect both sides.” 73. In Jelangant & another v Mwananchi Credit Limited & another [2023] KEHC 19922 (KLR), this Court (Mabeya J), while applying the principle in Mwambeja Ranching Company Limited & another v Kenya National Capital Corporation (supra), held that the In duplum rule is not only applicable to banks and financial institutions under the Banking Act , but it extends to all lenders. The Court stated that: “ This court reiterates the foregoing here. In its opinion, the in duplum rule was a principle that was imported into our laws to address a social and public interest issue wherein lenders would target defaulters as profit making machines. The rule is an answer to the need to have a reprieve for borrowers by doing away with exploitation through ensuring that lenders, be they banks, unregulated institutions or private lenders, are motivated to recover debts owed at the earliest opportunity and are limited in what they can recover. https://new.kenyalaw.org/akn/ke/judgment/kehc/2025/16564/eng@2025-10-09 10

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In this regard, I hold that the rule is not only applicable to banks and financial institutions under the Banking Act but it extends to all lenders. A narrow interpretation of the application of the rule will defeat justice. It will be discriminatory in that, those who borrow from banks will enjoy greater protection leaving those borrowing from elsewhere exposed. Borrowing is borrowing and it would be inequitable for one group in society to be treated differently.” 74. In the present case, the Plaintiffs invoked the in duplum rule, arguing that they have repaid a total of Kshs. 22,000,000/- against a principal sum of Kshs. 11,000,000/-, and that the facility is therefore fully satisfied. I associate with the reasoning in Mwambeja Ranching Company Limited & another v Kenya National Capital Corporation (supra), and find that the in duplum rule applies to the transaction in question. 75. The Plaintiffs’ evidence that they have repaid Kshs. 22,000,000, twice the principal amount, was not controverted. Accordingly, any claim for interest or penalties beyond the principal sum is unenforceable in law. Whether the Charge created in favour of the 2nd Defendant was valid and enforceable 76. The Plaintiffs submitted that on 28th May 2021, the 1st Defendant irregularly created a Charge over the suit property in favour of the 2nd Defendant without issuing the requisite 21–day default notice as per the loan agreement. The Plaintiffs further argued that since the loan was already fully repaid pursuant to the In duplum rule, the Charge ought to be discharged. 77. The 1st Defendant, on the other hand, asserted that it was the registered proprietor of the suit property and had full rights to create a Charge in favour of the 2nd Defendant under Sections 24, 25, and 26 of the Land Registration Act. The 2nd Defendant, on its part, maintains that it was an innocent chargee for value, with no privity of contract with the Plaintiffs. 78. The Court has examined the evidence and documents produced. The record shows that the 1st Defendant became the registered proprietor of the suit property upon execution of a transfer by the Plaintiffs as security for the loan. However, the right to create a Charge is primarily contingent upon a lawful and subsisting interest in the property. 79. Though the 1st Defendant was registered as proprietor as of the date of the Charge, its ownership was conditional on the loan agreement. The Court having found the underlying loan agreement was unconscionable and that the debt had been fully satisfied under the in duplum rule, equity will not allow a charge to stand as security for a debt that is no longer due. 80. Accordingly, I find that the Charge registered by the 1st Defendant in favour of the 2nd Defendant, though procedurally regular, has been substantively discharged by operation of law, and should therefore be released. Whether the Plaintiffs are entitled to the reliefs sought 81. The Court has already found that the interest and penalty terms were unconscionable and that the Charge in favour of the 2nd Defendant was irregular. The Plaintiffs have demonstrated repayment of Kshs. 22,000,000 against a principal of Kshs. 11,000,000. By the in duplum principle, no further sum is recoverable. 82. Further, the Plaintiffs having fully satisfied the debt prior to the creation of the transfer of the suit property to the 1st Defendant and the subsequent Charge in favour of the 2nd Defendant, the https://new.kenyalaw.org/akn/ke/judgment/kehc/2025/16564/eng@2025-10-09 11

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natural consequence is that the Plaintiffs are entitled to an unconditional discharge of the Charge and retransfer of the property to the Plaintiffs. In default of compliance, the Deputy Registrar of this Court shall execute the requisite transfer instruments. 83. On the claim for refund of Kshs. 13,600,000, I note that while the Plaintiffs have repaid a substantial sum, the figure claimed as excess payment was not supported with sufficient reconciliation evidence to the Court’s satisfaction. I therefore decline to grant a refund, but find that the loan stands fully satisfied. Conclusion 84. 85. In light of the foregoing, the Court hereby enters judgment for the Plaintiffs against the Defendants on the following terms: i. A declaration that the interest and penalty clauses in the Loan Agreement dated 27th January 2021 between the Plaintiffs and the 1st Defendant are unconscionable, and are therefore illegal and unenforceable; ii. A declaration that the Plaintiffs have fully satisfied the loan facility advanced by the 1st Defendant; iii. An order directing the 1st and 2nd Defendants to discharge and retransfer Title No. I.R. 83020 / L.R. No. 15065/64 to the 2nd Plaintiff within thirty (30) days of this judgment, failing which the Deputy Registrar of this Court shall execute all necessary transfer and discharge documents to effect the retransfer; and iv. The Plaintiffs shall have the costs of the suit together with interest at court rates from the date of judgment until payment in full. It is so ordered. SIGNED, DATED, and DELIVERED IN VIRTUAL COURT THIS 9TH OCTOBER 2025 ADO MOSES JUDGE In the presence of: C/A – Moses ………….……….. for the Plaintiffs ...………….…..... for the 1st Defendant …………………for the 2nd Defendant https://new.kenyalaw.org/akn/ke/judgment/kehc/2025/16564/eng@2025-10-09 12

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