Time to expand the In Duplum rule?

A few weeks ago, I wrote an article asking how our courts award damages. The article elicited mixed reactions with the most notable one being some lawyers interpreting it as a legal opinion when it was strictly an economic opinion interrogating how courts quantify monetary damages going by the damages awarded in some cases.

Now, despite the various responses the piece attracted, the question about how courts in Kenya quantify damages was still not answered.

First, there were responses where I was asked to familiarise myself with the relevant statutes that are used to award damages.

So far, I was only able to get a piece of quantification in the defamation statute, which only provides the floor cost in awarding and leaves the rest to the discretion of the courts. Apart from the defamation statute, I did not find any other statute that quantifies monetary damages.

Second, I was corrected that In Duplum rule cannot apply to commercial transactions. Fair enough, let’s revisit the Cape Holding vs Synergy Industrial Credit case.

When the case went before arbitration, the arbitrator ruled that the Sh 570 million deposit Synergy Industrial Credit paid Cape Holdings for the purchase of one block of the 14 Riverside Development ended up being money advanced to Cape Holdings to complete the construction of the 14 Riverside.

The interesting bit comes in here. The arbitrator ruled that the money moved from deposit for the purchase of one block where there was an actual sale agreement to money advancement through a verbal agreement.

The High Court and the Court of Appeal had found the arbitrator had acted outside the realms and jurisdiction of the Arbitration Act though. So, in awarding the damages how did the arbitrator come up with the 18 percent interest, bearing in mind that the agreement was verbal?

How did the arbitrator arrive to the conclusion that Cape Holding’s contractual obligation should be to pay Synergy Industrial Credit the money back with an interest of 18 percent?

Third, if the transaction moved from a sale agreement to money advancement, which basically means that the money was extended as a loan, the next question is: if an arbitrator can re-write the contract for the parties, in this case the money in question is now a loan advanced, should the arbitrator benchmark with the regulated or unregulated credit market when identifying the interest to be paid back?

This then brings me to the other question: if the arbitrator should benchmark from the regulated credit market, so why shouldn’t the In Duplum rule not apply? In this case, the arbitrator chose to benchmark with the informal credit market where borrowers are charged abnormal and extortionist interest rates.

Now, in fulfilling procedural justice and to maintain its integrity, does justice seem to be served when the arbitrator re-writes the contract and penalises one party to pay an interest of Sh3.35 billion when the capital amount was Sh570 million?

Ideally, for a forensic economist, the fair calculation for breach of contract, in this case, would simply be to find the current valuation of that one block Synergy Industrial Credit intended to purchase as the monetary damages.

But since the arbitrator ruled that it’s money advancement, then the interest charges shouldn’t exceed Sh570 million because there is a legal backing for this quantification.

So, the question still lingers, how did the arbitrator arrive at the 18 percent compounding interest when awarding the monetary damages?

Lastly, one lesson this case gives us is that there is need to expand the statutory application of the In Duplum rule in Kenya. As legislated, the In Duplum rule only applies to the formal loans given by financial institutions regulated by the Central Bank of Kenya (CBK).

This means credit providers outside the purview of the CBK are in a position to exploit borrowers by paying unregulated extortionist charges.

In South Africa, the In Duplum rule applies to all credit providers extending credit as part of their business.