A long-standing financial dispute has ended in a major legal setback for a lender after the Court of Appeal ruled against enforcing a Sh69 billion claim stemming from a Sh7 million loan given in 1994.
The case revolved around a friendly loan between two longtime associates, where the lender advanced Sh7 million, of which Sh3 million was repaid. The remaining Sh4 million, however, became the subject of a protracted legal battle after the lender attempted to recover it nearly 30 years later claiming the amount had grown to Sh69 billion under an interest clause of 36% per annum, compounded quarterly.
Though no formal contract existed, the loan was secured using a property title surrendered by the borrower. Despite this, neither party took any action over the unpaid sum for close to three decades. The lender resurfaced in 2023 and moved to enforce the claim, sparking the court proceedings.
Initially, the High Court sided with the lender, but this decision was challenged and ultimately overturned by the Court of Appeal. The appellate judges questioned the fairness and rationality of a claim that had multiplied so dramatically over time without any effort to enforce repayment or negotiate terms.
The court stressed that although private agreements are legally recognized, they cannot violate public policy or lead to outcomes that are manifestly unjust. It emphasized that the enforcement of such an excessive figure would constitute unjust enrichment and go against the principles of equity and reasonableness.
In its ruling, the Court of Appeal acknowledged the lender’s right to seek repayment but dismissed the Sh69 billion claim as untenable. The borrower was ordered to repay the original Sh4 million, with interest at court rates calculated from September 19, 2019. If payment is not made, the secured property will be sold by public auction to recover the debt.
The judgment reinforced that freedom of contract has limits, particularly where silence, inaction, and disproportionate financial outcomes are concerned. The case serves as a cautionary tale on the risks of informal financial arrangements and the importance of timely enforcement and documentation in lending agreements.
