The East African Development Bank (EADB) has suffered a major legal setback after Kenya’s High Court dismissed its attempt to recover nearly $10 million from Kenya Bus Service (Mombasa) Limited and several guarantors, ending a court battle that stretched for more than 2 decades.

The ruling, delivered on June 13, concluded that the regional lender failed to provide adequate documentation showing how an original loan facility worth approximately Sh126 million grew into a claim approaching Sh1.3 billion ($10 million).

Court questions growth of original loan

Court records show that EADB extended financing to Kenya Bus Service (Mombasa) Limited on October 1, 1998, through a loan agreement valued at Special Drawing Rights (SDR) 1.6 million.

While the lender maintained that guarantors had committed to repaying the debt, including interest, fees and other charges in the event of default, the court found significant gaps in the evidence presented.

A central issue was EADB’s inability to clearly demonstrate how the SDR-denominated facility evolved into an outstanding balance of $3.5 million by February 2003. The lender later revised its claim upward to approximately $9.9 million, equivalent to around Sh1.3 billion at current exchange rates.

According to the judgment, the bank did not sufficiently account for the accumulation of interest, penalties and related charges that formed the basis of its final claim.

Guarantors escape liability

Under the original financing agreement, Kenya Bus Service was required to provide personal guarantees acceptable to EADB as security for the loan. The bank argued that the guarantors had irrevocably and unconditionally agreed to settle all obligations arising from the facility.

However, the court determined that the lender had not met the evidentiary threshold required to enforce the guarantees, effectively releasing the defendants from liability under the claim.

Kenya Bus Service (Mombasa) Limited was once Kenya’s leading public transport company, playing a pivotal role in urban mobility and intercity travel. Originating from British-owned United Transport Overseas Services (UTOS), the operator dominated commuter transport in Nairobi and Mombasa, shaping the country’s transit network for decades.

A key regional development institution

Founded in 1967 under the East African Cooperation treaty, the East African Development Bank was created to finance projects that support economic growth across the region. The institution was re-established under a revised charter in 1980, expanding its mandate beyond industrial development to a broader range of financial services.

Today, EADB is jointly owned by the East African Community member states of Kenya, Uganda, Tanzania and Rwanda, alongside development and commercial financial institutions.

The judgment marks one of the most significant legal defeats for the regional lender in recent years and underscores the critical importance of maintaining detailed loan records and transparent debt calculations in long-running financial disputes.