The High Court partly allowed the lender’s appeal against a 2024 judgment by the Milimani Chief Magistrate’s Court, which had ordered HFCB to refund the money to the estate of the late Benson Njenga Ndindi, together with interest dating back to March 2000.

Instead, the judge directed the parties to jointly appoint an independent accountant to determine whether any refund is payable after a fresh review of the mortgage account.

The case arose from a mortgage taken in 1991 to finance a property in Nairobi’s Runda estate.

The estate argued that HFCB repeatedly increased the interest rate from the agreed 18 percent to as high as 26 percent without issuing the four months’ written notice required under the charge document.

It also accused the lender of imposing penalty interest, default charges and other unlawful debits that inflated the outstanding loan balance long after the facility had allegedly been repaid.

The magistrate accepted those claims and relied on an analysis by the Interest Rates Advisory Centre (IRAC), which concluded that the borrower had overpaid the loan by Sh8.4 million by March 2012.

On appeal, however, the High Court found that although HFCB breached the loan agreement by varying interest rates without the required notice, the IRAC report did not conclusively establish the amount allegedly overcharged.

“The finding of the subordinate court that the respondent was overcharged in the sum of Sh8.4 million is set aside, as the IRAC report upon which it was premised was fundamentally flawed and lacked the requisite probative value to sustain such a finding,” the court ruled.

The judge said the expert report failed to provide detailed calculations supporting its conclusions, overlooked key contractual documents, including a 2003 loan restructuring agreement, and relied solely on records supplied by the borrower without seeking corresponding records from the bank.

The court nevertheless upheld the magistrate’s finding that HFCB unlawfully varied the interest rate without first issuing the required four months’ notice.

“The issuance of notice” was a contractual precondition for varying the interest rate, the court said, noting that one of the bank’s witnesses admitted during the trial that, on one occasion, the interest rate was changed on the same day the notice was issued.

The court also upheld findings that HFCB was not entitled to levy penalty interest, interest on arrears or default charges because those fees were not provided for in either the charge document or the letter of offer.

However, it overturned the lower court’s finding that HFCB had unlawfully debited insurance premiums, ruling that the issue had not been pleaded and should not have been determined.

The judge also set aside the finding that HFCB breached the Banking Act’s in duplum rule, holding that the evidence did not support that conclusion.

Rather than dismissing the claim, the court directed the parties to appoint an independent accountant within 14 days to recompute the mortgage account using a fixed interest rate of 18 percent throughout the loan period.

The fresh computation will exclude penalty interest, interest on arrears and default charges while taking into account the 2003 restructuring agreement.

If the parties fail to agree on an accountant, the chairperson of the Institute of Certified Public Accountants of Kenya will nominate one. The accountant will have 45 days to file a report, after which the court will issue further orders, including any refund that may be due.