A simple loan between friends has spiraled into a decades-long legal saga, culminating in a dramatic intervention by Kenya’s Court of Appeal. The court halted a claim where a Sh7 million debt from 1994 was alleged to have ballooned to a staggering Sh69 billion under a compounded interest arrangement.
The dispute stemmed from a friendly loan extended in 1994, with only Sh3 million of the Sh7 million sum having been repaid. The remaining Sh4 million became the subject of intense legal scrutiny. The lender had secured the loan against property surrendered by the borrower and claimed the agreement allowed for interest at a staggering 36% per annum, compounded quarterly.
For nearly 30 years, there was no legal action or serious communication regarding repayment. In 2023, however, the lender resurfaced, seeking to enforce the balance with interest, bringing the total demand to over Sh69 billion.
Initially, the High Court ruled in favour of the lender. However, the borrower appealed the decision, prompting the Court of Appeal to take a closer look at the circumstances and legality of the claim. A bench of three judges questioned the interest rate, the lack of enforcement for nearly three decades, and the nature of the informal agreement.
The court found that while the borrower owed the Sh4 million balance, the claim for Sh69 billion was not just excessive but offensive to fairness and equity. The court emphasized that enforcing such a sum would amount to unjust enrichment and a violation of public policy, despite the existence of a contractual clause.
The ruling underscored the principle that private agreements are subject to scrutiny under public policy and fairness, particularly when they produce disproportionate and unreasonable outcomes. The judges concluded that such claims must be approached with the lens of equity and common sense.
Consequently, the appellate court overturned the High Court’s decision and dismissed the Sh69 billion claim. Instead, it ordered repayment of the original Sh4 million with interest at court rates from 2019. Should the borrower fail to pay, the property used as collateral will be auctioned to recover the owed amount.
The case serves as a reminder that even in personal financial arrangements, the law frowns upon exorbitant interest terms and unjust delays in enforcement.
