Co-operative Bank of Kenya Ltd v Biwott [2022] KEHC 9946 (KLR)

Co-operative Bank of Kenya Ltd v Biwott (Civil Appeal 18 of 2019) [2022] KEHC 9946 (KLR) (13 July 2022) (Judgment)

Neutral citation: [2022] KEHC 9946 (KLR)

Republic of Kenya

In the High Court at Eldoret

Civil Appeal 18 of 2019

RN Nyakundi, J

July 13, 2022

Between

Co-operative Bank of Kenya Ltd

Appellant

and

Simon Kiplagat Biwott

Defendant

Judgment

1The Appellant Co-operative Bank of Kenya Ltd formerly the Defendant in CMCC No. 377 of 2017 has appealed against the judgement of the trial court delivered on 1st February, 2019 by Hon. Obulusta (CM) on both liability and assessment of damages. Being aggrieved with the judgement and decree of the said trial court the Appellant filed its Memorandum of appeal dated 6th February, 2019 formed up as follows; -1. The Learned Trial Magistrate erred in law and in fact in entering judgment for the Plaintiff as against the Defendnts when the Plaintiff had not proved her case on a balance of probability.2. The Learned Trial Magistrate erred in law and in fact in failing to appreciate the fact that the Respondent dealt with third paryies who are not the Appellant’s employees as alleged.3. The Learned Trial Magistrate erred in law and in fact in failing to appreciate that the Appellant was a separate and distinct entity from Kingdom Securities and Dennis Rop4. The Learned Trial Magistrate erred in law and in fact in finding that the Appellant liable contrary to the evidence on record that the Respondent was dealing with unidentified third party who hoodwinked the Respondent to believe that he had opened a fixed deposit account.5. The Learned Trial Magistrate erred in law and in fact in granting general damages when the same was not proved.6. The Learned Trial Magistrate erred in law and in fact in totally failing to consider the submissions of the Appellant.7. The Learned Trial Magistrate erred in law and in fact in granting general damages which were inordinately high.8. The Learned Trial Magistrate erred in law and in fact in failing to find that the cash withdrawals done by the Respondent from his account could have been paid to third parties or yet utilized by himself in any other manner but not for purchasing of Treasury bills.9. The Learned Trial Magistrate erred in law and in fact in failing to find that the mere filling in of forms by the Respondent and the mere fact that there were cash withdrawals from the respondent’s account by the Respondent and did not in any way amount to purchase of treasury bills without actual payment or deposit receipts evidencing purchase of the treasury bills.10. The Learned Trial Magistrate erred in law and in fact in failing to find that the mere filling of forms only indicated the intention to purchase treasury bills and not the actual purchase.

Background of the Case 2On 12th April, 2017 Simon Kiplagat Biwott the Respondent herein lodged a Plaint in the Trial Court at Eldoret. It was pleaded in Plaint that the Respondent was at all material times, the Respondent was the Appellant’s customer at its Eldoret Branch along Ronald Ngala Street and operated Account No. 0111xxxxxxxxxx. The Respondent averred that in the month of March, 2016 he got interested in the Appellant’s fixed deposit account services and upon enquiring from the Appellant’s staff, he was advised that he could earn an interest of 12. 5% p.a. on a fixed deposit account operated at the Appellant’s bank.

3The Respondent averred that on 2nd of March, 2016 having been induced by the said information, he immediately caused to be transferred through the Real Time Gross Settlement (RTGS) from Kenya Commercial Bank Ltd (KCB) account No. 1108xxxxxx Kshs. 10,000,000/= to account No. 0111xxxxxxxxxx held in his name at the Appellant’s Eldoret Branch along Ronald Ngala Street.

4The Respondent further averred that as confirmation that the Appellant had received the said monies, on 3rd March, 2016 the Appellant caused to posted a credit entry on the Respondent’s Account No.0111xxxxxxxxxx. The Respondent averred that on 3rd March, 2016 he visited the Appellant’s branch along Ronald Ngala Street in Eldoret with the view of operationalizing said fixed deposit account where he met the Appellant’s staff. The Respondent maintains that the Appellant’s staff acting under guise of operationalizing a fixed deposit account surreptitiously induced him to execute an application for funds transfer in blank and informed him that the particulars were to be completed upon the details of the fixed deposit account being provided by the Appellant.

5The Respondent contended that having no reason to doubt the Appellant and its staff, he left the blank application for funds transfer in the custody of the said Appellant’s staff who dated and endorsed the said application with Appellant’s official stamp on the 3rd March, 2016.

6The Respondent contended that the Appellant never provided him an account number for a fixed deposit account but however on the 7th March, 2016 it allowed the irregular transfer of Kshs. 10,000,000/= from the Respondent’s account No. 0111xxxxxxxxxx. The Respondent further contended that he was never sent or given advanced prior notice of the intended debit and transfer of the aforesaid sum from his account to enable him signify his consent or dissent in-tandem.

7The Respondent averred that pursuant to the explanation that he had been given by the Appellant’s staff he all along believed that the Appellant had opened a fixed deposit account in his name. The Respondent further averred that the Appellant under the guise of hoodwinking him to believe that a fixed deposit account existed causes credit entries of Kshs. 122,300/= to be made as alleged gains of the fixed deposit account between 6/4/2016 to 13/1/2017. The Respondent further averred that in month of February 2017 he discovered that the normal credit of Kshs. 122,300/= had not been reflected in his account by the Appellant which prompted him on 9th February, 2017 to write and complain to the Appellant. The Respondent contends that the said letter was stamped as received on 9th February, 2016 instead of 9th February, 2019.

8The Respondent averred that on 28th February, 2019 the Appellant caused its Branch Manager to respond to its letter in which the Appellant admitted that a fixed deposit account had not been opened. The Respondent further averred in view of the foregoing he now discovered that the Appellant had indeed caused fraudulent transactions and dealings to be facilitated through his account and had sanctioned the transfer of Kshs. 10,000,000/= to open a CDS account No. 2028xxxx with an establishment described as Kingdom Securities which was alien to him.

9The Respondent further averred that he has discovered that a standing order establishment form under the Appellant’s form A101 (A) bearing the Appellant’s registered name had been created under the disguise title of a suspense account with an application dated 4th March, 2016 which contained Kshs. 10,000,000/= and it indicated a monthly frequency repayment of Kshs. 122,187. 50 to the Respondent’s account No. .0111xxxxxxxxxx and the first payment date was to be 4th April, 2016. The Respondent further averred that from the standing order establishment form he also discovered that the Appellant had through it bank authorized a signatory named therein as Martin Kimani allegedly verified the particulars but the Respondent had never at any time been consulted by the Appellant over the operationalization of standing order over his funds. Further the Respondent contended that to his utter shock, the Appellant had allowed the fraudulent creation of a business arrangement akin to a joint venture between its staff and the Respondent without his knowledge and authority and had through its Operations Manager on 14th March, 2016 sanctioned a letter written to its staff. The Respondent also established that the bank application for funds transfer that he had entrusted to the Appellant’s staff and which had been stamped on 3rd March, 2016 had been cancelled and date that was now stamped was 4th March, 2016.

10The Respondent maintained that on 4th March, 2016 he never visited the Appellant’s bank and he also did not receive any call from the Appellant. The Respondent averred that all the aforesaid acts by the Appellant itself, its agents or servants were flagrant breach of the banking contract, the banker customer relationship, the banking customs and practices and the law.

11The Respondent’s claim against the Appellant was for a declaration that the Appellant by itself, its servant and or agent acted in flagrant breach of the banking contract, the banker customer relationship, the banking customs and practices and the law with a finding that the Appellant is vicariously liable for the fraud of its employees and or agents by the fraudulent dealing of the Respondent’s Kshs. 10,000,000/=. The Respondent also claimed Kshs. 10,000,000/= together with interest at 12. 5pa or such court rate from 3rd March, 2016 until the date of judgment and or full payment. The Respondent also prayed that assessment of damages for breach against the banking contract and his rights as customer of the bank.

12The Appellant herein filed a statement of defence denying any breach of duty or particulars of negligence as pleaded by the Respondent. The Appellant denied having at the time an offer of 12. 5% on fixed deposit accounts as alleged by the Respondent. The Appellant maintained that on 4th March, 2016 the Respondent had approached the bank with the intent of inquiring whether the RGTS he had made from KCB Ltd to his Co-op Bank Account No. .0111xxxxxxxxxx for Kshs. 10,000,000/= had been credited in his account. That upon checking, the concerned teller noted that value that was involved and in accordance with circular No. 1 of 2016 of the Central Bank of Kenya requested the Respondent for the relevant documents that supported the huge amount of money that was being transferred. The Appellant contended that the Respondent did not have any of the said documents and pleaded with the bank for some more time to avail the said documents.

13The Appellant averred that on the same day the Respondent filled an application form for funds transfer as he wanted the said monies to be transferred from his account at the Appellant’s branch to a beneficiary in the name Kingdom Securities Account No.0113xxxxxxxxxx under CDS No. 2028xxxx whose identity number was 2753xxxx and the form as presented to the teller was duly filled and completed. The Appellant contended that it did due diligence and since there was no background of the source of the money prepared a standing order establishment form to wit the monies were to be held in a suspense account pending the delivery of supporting document by the Respondent which had not been availed on the 4th March, 2016.

14The Appellant averred that on 7th March, 2016 the Respondent did provide it with a land sale agreement dated 5th October, 2015 which showed that he had sold his parcel of land following which the Appellant further averred that the monies were therefore transferred as per the details that were contained in the form provided by the Respondent. The argued that the form having already being signed it did not question the details or call as the said form had been presented in person.

15The Appellant averred the posting in the account of the Respondent was in suspense account as there had not been given and a reason and real credit entry was made on 7/3/2016 after all logistics had been proved. The Appellant denied receiving any instructions from the Respondent as regards to opening a fixed deposit account. The Appellant denied the allegations by the Respondent that it made any credits to the Respondent’s account on any of the alleged dates.

16The Appellant denied any breach of the banking contract, if any existed in this case, banker customer relationship or any banking customs and practice and the law.

17The Appellant contended that the Respondent had not established the alleged employer/employee relationship and had also failed to name any of its agents so as to constitute the tort of vicarious liability.

17The appeal was disposed of by way of written submissions. The Respondent however did not file any written submissions.

Submissions by the Appellant 18The Appellant has challenged the trial Court’s decision through this appeal. That the learned trial Magistrate erred in both in his findings on liability and damages. On the issue of liability, the Appellant submitted that the Respondent never tendered any sufficient evidence to associate the Appellant with any blame. The Appellant submitted the Respondent herein was dealing one Dennis Rop, who worked for Kingdom Securities which was a separate entity from the Appellant herein. That the said Dennis Rop was never sued by the Respondent with the trial Court holding that Appellant should have called the said Dennis Rop as its witness. The Appellant submitted that onus of proof fell on the Respondent so as to establish the facts as pleaded and the same cannot be transferred to the Appellant as far as the transactions were concerned.

19As regards the issue of fraud, the Appellant submitted that the Respondent did not specific prove the particulars of fraud as required by the law. The Appellant maintains that fraud ought not only to be pleaded but proved. The Appellant relied on the case of Kampala Bottlers Limited Vs. Damanico (V) Limited (1994) EA 141.

20On the issue of the award of damages, the Appellant submitted that the rule in common law is that where a party sustains a loss by reason of a breach of contract the award in question should only place him in the same position as far as money can do so, as if his rights had been observed. The Appellant cited the case of Robinson V Herman (1848) Exch 850 to 855 (1843-60) All ER. The Appellant further argued that a factual and mathematical formula must then be adopted and not just a figure as in the case herein. The Appellant argued that damages are not meant to enrich a plaintiff far beyond his actual loss as in the judgment herein. The Appellant cited the case Victoria Laundry V Newman (1949) 2 KB 528 page 539

Determination 21The law on the duty of the first appellate Court is well settled. In the case of Abok James Odera T/a A. J Odera & Associates v John Patrick Machira T/a & Co. Advocates [2013] eKLR the Court stated that:This being a first appeal, we are reminded of our primary role as a first appellate court namely, to re-evaluate, re-assess and reanalyze the extracts on the record and then determine whether the conclusions reached by the learned trial Judge are to stand or not and give reasons either way. See the case of Kenya Ports Authority Versus Kuston (kenya) Limited (2009) 2EA 212 wherein the Court of Appeal held inter alia that“On a first appeal from the High Court, the Court of Appeal should reconsider the evidence, evaluate it and draw its own conclusions though it should always bear in mind that it has neither seen nor heard the witnesses and should make due allowance in that respect. Secondly that the responsibility of the court is to rule on the evidence on record and not to introduce extraneous matters not dealt with by the parties in the evidence.” (Emphasize ours, bold, underlined)

22The bank-customer relationship is contractual in nature and imposes a duty on the bank to exercise reasonable care and skill in its dealings with the customer. In Karak Brothers Company Ltd V Burden[1972] All ER 1210, the Court observed as follows:[A]bank has a duty under its contract with its customer to exercise “reasonable care and skill” in carrying out its part with regard to operations within its contract with its customer. The standard of that reasonable care and skill is an objective standard applicable to bankers. Whether or not it has been attained in any particular case has to be decided in the light of all the relevant facts, which can vary almost infinitely.In the present case the undisputed facts of the case are that;a.The Respondent and Appellant had a Customer/Bank Relationship.b.On 2nd March, 2016 the Respondent caused to be transferred through RTGS from KCB Ltd Account No. 1108xxxxxx the sum of Kshs. 10,000,000/= to Account No. .0111xxxxxxxxxx held in his name at the Appellant’s Eldoret branch along Ronald Ngala Street.c.The Appellant transferred the said monies from the Respondent’s Account to a beneficiary by the name Kingdom Securities Account No. 0113xxxxxxxxxx under CDS No. 2028xxxx.

23A bank has a duty under its contract with its customer to exercise “reasonable care and skill” in carrying out its part with regard to operations within its contract with its customer. The standard of that reasonable care and skill is an objective standard applicable to bankers. Whether or not it has been attained in any particular case has to be decided in the light of all the relevant facts, which can vary almost infinitely.

24In the present case the Appellant has been categorical that the Respondent on 4th March, 2016 approached the bank with the intent to inquire whether the RGTS he had made from KCB Ltd to his Co-operative Account had been received. The Appellant further submitted that on the said date the Respondent had filled an application form for funds transfer as he wanted the said monies transferred from his account to a beneficiary by the name Kingdom Securities Account No. 0113xxxxxxxxxx under CDS No. 2028xxxx. The Appellant has also submitted that since there was no background or source of the money at time it did due diligence it prepared a standing order establishment form to wit the monies were to be held in a suspense account pending the delivery of the supporting documents by the Respondent. The confirmed that on 7/3/2016 the Respondent herein then furnished it with a land sale agreement confirming the source of the said monies. The Appellant has also stated that the money was then transferred as per the details that were contained in the application form for funds transfer that been allegedly signed by the Respondent herein. The Appellant by its own admission has stated that since the form was already signed by the Appellant herein it wasn’t required to question the details or call as they had been presented in person.

25From the averments by the Appellant it is clear that that this transfer did not take place on 4/3/2016 being the alleged date when the Respondent herein visited the said branch but a much later date after he had furnished it with the supporting documents on the 7/3/2016. The Appellant has also submitted that since it did not know the source of the money at the time it had held the said monies in a suspense account pending the remission of the supporting documents by the Respondent. I want to believe that the Appellant as a responsible bank should have made inquiries from the Respondent after receiving the said supporting documents on whether the money being held in the suspense account should then be transferred to the said CDS account. The Appellant herein acted unilaterally and without obtaining the Respondent’s consent by transferring the said money from the Respondent’s account to the CDS account in question.

26At this point I would like to associate myself with the pronouncement of Birss J, in Philipp V Barclays Bank UK PLC & Anor [2022] EWCA Civ 318 where the learned judge at paragraph 76 while emphasizing the novel duty of care held that:76. One aspect of this case was the submission that allowing the appeal would involve either identifying a novel duty of care or at least an unwarranted extension of the Quincecare duty, beyond the limits of the right approach to the development of the law of duties of care. However I would hold that the relevant duty of care in this case, which I have found to be arguable, would be one established by the application of established principles of law (c.f. Robinson v Chief Constable of West Yorkshire Police [2018] UKSC 4 at [30]) rather than being a case in which the court was being asked to identify a duty outside an area of recognised duty of care. That is because the right way of looking at this case is that the Quincecare duty is not limited to agents but applies in any case in which the bank is on inquiry that the instruction is an attempt to misappropriate funds. In Nigeria v JP Morgan Chase Bank NA [2019] EWCA Civ 1641 at paragraph 40, Rose LJ explained that the Quincecare duty itself was one aspect of a bank's overall duty to exercise reasonable skill and care in the services it provides. Also, at first instance in the same case ([2019] EWHC 347 (Comm)) Andrew Burrows QC at paragraph 30 noted that recognising the duty of inquiry aspect of the Quincecare duty, would be in line with sound policy because “in the fight to combat fraud, banks with the relevant reasonable grounds for belief should not sit back and do nothing”. The observations of both of these learned judges apply with equal force if the Quincecare duty is not limited in the manner contended for by the bank in the present case.”

27The Appellant has contended that the onus of proof in this case lies with the Respondent herein. The Appellant has further submitted that Respondent in this case was dealing with one Dennis Rop who worked for Kingdom Securities a separate entity from itself. However, during cross-examination DW1 Margaret Wanjiku Kamau a customer service agent at the Appellant’s branch conceded that the said Dennis Rop is an agent of Kingdom Securities which is a subsidiary of Co-operative Bank. From the foregoing it is without doubt that the onus of proof in the circumstances of this case then shifted to the Appellant. The Appellant did not avail the said Dennis Rop as witnesses in court neither did present any documents in court to support its case. I find it strange that saving for mentioning in passing, the Appellant herein did not present before Court the alleged application form for funds transfer that was filled by the Respondent instructing it to transfer the said monies from his account to a beneficiary by the name Kingdom Securities.

28I find that the Appellant failed to discharge its duty of care to the Respondent in the manner it maintained the Respondent’s account. It cannot run away from this responsibility. When a customer opens an account with the bank, the bank is expected to apply its skill, expertise and all manner of safeguards to ensure that the customers’ money is safe from 3rd parties and other unauthorized persons.

29I know turn to the issue of damages. The Appellant’s case is that the award general damages of Kshs. 5,000,000/= by the trial Court was inordinate. The Appellant maintain contention is that the said award had no basis and that damages are not meant to enrich a party beyond his actual loss.

30The Respondent in the plaint dated 12th April, 2017 not only pleaded his case on the basis of breach of contract but also prayed for damages for breach of contract. Can the court award general damages for breach of contract?

31In Dharamshi v Karsan [1974] EA 41,the Court of Appeal for East Africa held that general damages for breach of contract are not allowed in addition to quantified or special damages. As a general principle, the purpose of damages for breach of contract is, subject to mitigation of loss, the claimant is to be put as far as possible in the same position he would have been if the breach complained of had not occurred. The measure of damages is in accordance with the rule established in the case of Hadley v Baxendale (1854) 9. Exch.341 that the measure of damages is such as may be fairly and reasonably be considered arising naturally from the breach itself or such as may be reasonably contemplated by the parties at the time the contract was made and a probable result of such breach (See Standard Chartered Bank Limited v Intercom Services Ltd & Others NRB CA Civil Appeal No. 37 of 2003 [2004]eKLR). Such damages are not damages at large or general damages but are in the nature of special damages and they must be pleaded and proved.

32In the judgment, the trial Magistrate awarded the Respondent Kshs. 5,000,000/= as general Damages for breach of contract. In awarding the Respondent general damages, it is clear from the judgment that the trial magistrate did not consider the case pleaded by the Respondent was grounded on breach of contract, that the court could not award general damages for breach of contract.

33The reading of the judgment generated by the court below gives rise to an unresolved issue whether there was principal-agency relationship between the appellant and Kingdom Securities. The exhibited evidence demonstrates that the contract on earnings of interest on deposit will accrue on the amount held on behalf of the respondent by a third party. Whether the case met the threshold for grant of the prayers in the plaint on liability and award of damages for breach of obligations by the appellant remained largely unsubstantiated on a balance of probabilities before the learned Trial Magistrate. Blacks Law Dictionary defines Agency as a fiduciary relationship created by express or implied contract or by law in which one party(Agent) may act on behalf of another party(principal) and bind that other party by words or actions. Dale Baze USLEGAL Creation of Agency . According to him an Agency is the legal relationship whereby one person, an agent, is authorized by another, a principal, to act on that person’s behalf and is empowered to do what the principal could lawfully do in person. The axiom of Agency is, he who acts through other acts himself. The principal thus assumes all the responsibilities of the agent in altering legal relationship with third parties on his behalf. In so dealing, an Agency is formed and brings into effect the law of Agency which prescribes certain responsibilities and liabilities to the principal and the agent. These rules of law also delineate responsibilities, obligations, and duties with regard to deal with third parties.

34It’s disheartening to note that the purported act of fixed account deposit with a condition precedent of it being capable of earning interest revolves around this question. There are certain essential elements that ought to have been present both the pleadings and the specific proof for a plea of Agency before the trial court. In executing the terms of the contract, the nature of the breach and the circumstances of this particular case to warrant liability and subsequent claim for damages to me was a key suited issue. It sometimes happens that contracts entered into between the principal and the agent are broken or breached. It therefore becomes necessary for a trial court to determine who can sue and be sued on such contracts. It is trite that liability of either the agent or principal depends on whether as at the time of the contract with the third party, the agent was fully, partly or not disclosed to give rise to liability for breach. Regarding this appeal it is instructive that the evidence and judgment did not address this legal question. It is pertinent to make an observation that the frustration or change in circumstances may have rendered the fulfilment of a legitimate expectation to the respondent.

35Having made my findings as above, I come to the following conclusion:i.This appeal is allowed to the extent that the decree of the Subordinate Court awarding the Respondent, ‘’General damages for breach of contract of Kshs. 5,000,000/= is hereby set aside and substituted with an order dismissing the claim for general damages for damages. As a consequence, I will allow the appeal with no orders as to costs.

DATED, SIGNED AND DELIVERED VIA EMAIL AT ELDORET THIS 13THDAY OF JULY, 2022. ............................R. NYAKUNDIJUDGE