Case Study: African Banking Corporation Limited v City Gas Limited & 3 others [2025] KEHC 10064 (KLR)
1. The Litigants
Plaintiff: African Banking Corporation Limited.
Defendants: City Gas Limited (1st Defendant); Mohamed Adan Bare, Hamdi Abdi Nur, and Abdikadir Abdi Sheikh (2nd, 3rd, and 4th Defendants, who served as directors and guarantors).
2. The Issue of Contention
The suit arose from a breach of a loan facility agreement dated 26th July 2012. Core disputes included the recoverability of an outstanding debt balance following the sale of a charged property, the validity of Deeds of Guarantee, and the proper application of the in duplum rule under Section 44A of the Banking Act.
3. The Panel of Judges
Presiding Judge: Hon. Lady Justice Rhoda C. Rutto.
4. The Arguments in Court
Plaintiff’s Arguments: The Bank argued the loan was correctly restructured and the guarantees constituted “continuing security” for all liabilities. It asserted its calculation of the outstanding balance (Kshs 45.5 million) complied with the in duplum rule.
Defendants’ Arguments: The Defendants challenged the quantum of the claim, arguing the Bank misapplied the in duplum rule by “doubling” the debt in a single charge. They further contended the Deeds of Guarantee were invalid due to late stamping and backdating, and that the claim was not supported by actual bank statements.
5. The Judgment
The Court found the Plaintiff failed to substantiate the full claim of Kshs 45,502,715.29.
Based on bank statements, the Court entered judgment against the Defendants, jointly and severally, for the proven sum of Kshs 36,181,942.79, together with interest at contractual rates.
The Court upheld the validity of the Deeds of Guarantee and the propriety of the private treaty sale.
6. Implications for Future Litigation
Shield, Not a Sword: The ruling clarifies that the in duplum rule is a “shield” for borrowers to prevent excessive interest, not a “sword” for lenders to justify automatic debt inflation.
End of “Presumptive Accounting”: Lenders can no longer automatically “double” debts upon default; they now bear a strict burden to provide granular, accurate bank statements proving interest has actually accrued to that level.
Evidentiary Precision: Claims not mathematically supported by bank statements—which are prima facie evidence under Section 176 of the Evidence Act—will face immediate judicial adjustment, regardless of a lender’s theoretical calculations.
Strategic Defense: This case provides a clear roadmap for defendants to mitigate liability by shifting the focus from the legality of interest charging to the mathematical accuracy of a bank’s ledger.
Collateral Control: By affirming that “continuing security” clauses remain valid after restructuring, the court balanced borrower protections with the bank’s ability to maintain collateral control during loan modifications.