East African Packaging Industries Limited v Wilson Mwangi Muraga, Alex Njuguna Karanja, John Macharia Mwangi, Moffat Wachira Muruga, Magpies Suppliers, Munyer Enterprises, Barclays Finacne Company, Housing Finance Company, N.I.C Century Plaza, Standard Chartered Bank, Akiba Bank-Fedha Towers & East African Building Society [2018] KEHC 8403 (KLR)

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA AT NAIROBI

MILIMANI COMMERCIAL & ADMIRALTY DIVISION

CIVIL CASE NO. 1045 OF 1999

EAST AFRICAN PACKAGING INDUSTRIES LIMITED...................PLAINTIFF

-VESRSUS-

WILSON MWANGI MURAGA....................................................1ST DEFENDANT

ALEX NJUGUNA KARANJA.......................................................2ND DEFENDANT

JOHN MACHARIA MWANGI.....................................................3RD DEFENDANT

MOFFAT WACHIRA MURUGA.................................................4TH DEFENDANT

MAGPIES SUPPLIERS.................................................................5TH DEFENDANT

MUNYER ENTERPRISES............................................................6TH DEFENDANT

BARCLAYS FINACNE COMPANY............................................7TH DEFENDANT

HOUSING FINANCE COMPANY...............................................8TH DEFENDANT

N.I.C CENTURY PLAZA..............................................................9TH DEFENDANT

STANDARD CHARTERED BANK...........................................10TH DEFENDANT

AKIBA BANK-FEDHA TOWERS.............................................11TH DEFENDANT

EAST AFRICAN BUILDING SOCIETY..................................12TH DEFENDANT

JUDGEMENT

1. This suit by East African Packaging Industries Limited (hereinafter EAPI or the Plaintiff) is for the sum of Kshs.16,312,217. 25 which it claims was lost through fraudulent transactions.  Although EAPI had sued twelve Defendants, the suit against the 7th – 12th Defendants was compromised and marked settled on 12th October 2000.

The Plaintiff’s case

2. The hearing of this matter has passed the hands of not less than five Judges.  It has fallen upon me to determine this old matter.

3. Antony Njoroge Ngugi (PW1) worked for EAPI between April 1995 and July 1999 where he held the position of Finance and Administrative Manager. In that capacity he was responsible for the entire Finance Department as well as the administration of the Company.  EAPI would from time to time undertake internal investigation as a matter of course during its accounting circle.   During one such exercise carried out in May 1999, it turns out that the cash books were not balancing.  Owing to the sums revealed as missing the Company lodged an independent audit.

4. The Audit showed that some Bank statements held by EAPI did not reflect the statements of the Company’s Account with the Bank.  The investigations showed that there were some transactions omitted from the Company statement but which were reflected in the Bank’s statements.  These transactions related to a series of cheques that were in sequence and involved the sum of Khs. 16,312,217. 25.  The questionable cheques were recovered from Standard Chartered Bank which was one of the Company’s Bankers.  The cheques were 17 in number.

5. The payees to the cheques were Alex Njuguna Karanja (the 2nd Defendant), Magpies Supplies (the 5th Defendant) and Munyer Enterprises (the 6th Defendant). The 2nd Defendant was known to the Plaintiff Company as he worked in the Financial Department of the Company.  As for the 5th Defendant it was the evidence of Fredrick Murimi Ngari (PW7) that it held an Account with Akiba Bank.  PW7 who was at the time of giving evidence a Legal Officer of Akiba Bank, testified that the 5th Defendant was registered as a Business Name in the names of John Macharia Mwangi (the 3rd Defendant) and Wilson Mwangi Murage (the 1st Defendant).

6. It was the evidence of PW1 that all the 17 cheques were from one cheque book. And that the practice of the Company was to use one cheque book at a time. That in the course of investigation they learnt that the said cheque book was unknown to the company. And that, the signatures on the cheques were forged. The witness explained the procedure for payments of goods and services.That a cheque would be requisitioned before a cheque is drawn.  The requisition would have to be supported by evidence of the order for and receipt of goods. Attached as well would be relevant goods received note and an invoice.

7. Once approved for payment the requisition would be forwarded to the person incharge of  cheques and cash books to draw the cheque. At the material time the 1st Defendant was incharge of the cheque book and cash book.  The cheque would be circulated to any two of the authorized signatories of the Plaintiff for their signature. At that time the following were the authorized signatories:-

a) Mr. John Small ………. the Managing Director

b) Erie Hills …………… the Technical Director

c) Mr. Ron Fasol …… the General Manager

d) Mr. Lazarus Kanjigi .…. the Financial Accountant and

e) PW1 himself.

8. There is then the procedure for payment of wages.  The 2nd Defendant detailed the employee’s particulars with regards to name, hours worked and amount due.  This would be forwarded to Mr. Kanjigi for his authorization.  Upon such authorization, the documents would be forwarded to the 1st Defendant to raise a cheque requisition and a cheque for signature by the authorized signatories.

9. The evidence of the witness was that although one of the signatures on the cheques resembled his signature, none of them belongs to him.  Those signatures were subjected to Document examination by Mr. S.M Mweu, a Document Examiner, and by a Report dated 9th July 2002 (P Exhibit 23A) found both the signatures of PW1 and Mr. Small which were disputed to be forgeries.

10. Mr. Mweu (PW8) had to defend his report.  He told Court that the documents he examined and used to compare with the cheques were photocopies but the signatures on them were sharp and could be identified. He said that it is possible to compare signatures as long specimens were sharp. He proceeded with the photocopies as he assumed that the person who instructed him (Advocate Ireri) could not get the originals.  He further told Court that he was not aware that officers of the Criminal Investigation Department (CID) were engaged in a similar exercise as well.  He also did not know the names of the persons whose handwritings he was examining and neither did he obtain the signatures from John Small and Antony Ngugi (PW1). It was Mr. Ireri who brought him the documents with the sample signatures.

11. Back to PW1. The witness gave some detail about the manner in which goods would be requisitioned by the Company.  He was emphatic that all goods would be ordered in writing.  And that the Managing Director was a signatory to the Documents that would commit the Company to procure goods and services.  It was Company policy that employees would not engage with any business or occupation which would be in conflict with the Company.  He pointed to clause 6 of the letters of employment of the 1st Defendant and 2nd Defendant.

12. Under cross examination, he confirmed that he testified in criminal case No. 2163 of 1995 (REPUBLIC VS. WILSON MWANGI MURAGA & 2 OTHERS) in which the 1st – 3rd Defendants were charged in respect to offences relating to the loss of the money which is the subject matter of this suit.  It was his testimony that he may have told the Criminal Court that the loss to the Company was in the region of eleven million. He explains this by stating that it was on the basis of some initial investigation but that further investigations revealed a bigger loss.

13. The witness had to answer question as to the manner of collection of cash from the Bank.  This was because the loss suffered by the Company included cash of Kshs.2,562,770/=.  His testimony was that the 2nd Defendant was in charge of wages and stocks and was one of the persons authorized for collection of cash from the Bank.  The 2nd Defendant would present a cheque at the Bank and collect money which would be placed in a cash box.  The cash box would be sealed and the cash would be delivered to the Company by the 2nd Defendant under escort of armored services provided by a contracted security firm.

14. Sirus Njaine Macharia (PW3) was at the material time the Computer Manager of EAPI. His duties were to administer computer data processing and training of personnel in administration of computer activities. He was also involved in two stages of procurement of computers and computer equipment. Once a need for an equipment was identified, PW3 would make the requisition justifying the need and seek approval from Mr. Tony Ngugi who was his Supervisor.  Upon approval, the Document would be forwarded to the Purchasing Department which kept the list of the various Suppliers to the Company, for that Department to raise a Local Purchase Order (LPO).  The LPO is a written document and would be signed by the Purchasing Manager.  The LPO required the endorsement of a Director of the Company depending on its value.  The LPO would then be submitted to the Supplier.  Upon delivery of the goods, the goods would be taken to the Computer Department for verification.  As the person who initiated the procurement, PW3 would have to sign the Delivery note from the Supplier which would have accompanied the goods.

15. Shown some invoices and receipts in the 5th and 6th Defendants’ list of documents, the witness stated that such documents ordinarily fell under his department.  However, it was his testimony that he did not requisition for the goods in   those documents nor was he aware of any requisition emanating from his Department in respect thereof.  He added that none of the goods mentioned in those documents were received by the Company.

16. Under cross-examination, he was able to recall that there was a Mr. Kiarie who was transferred to the Computer department after he had left.  He denied that Mr. Kiarie was ever his assistant.  The witness told Court that he left the Company in August 1999 upon retirement on medical grounds.  And whilst he was not aware of ongoing investigations in respect to the loss that is the subject of this suit, he was aware that internal audit had revealed such a loss.

17. Mr. Elly Owiti Mitto (PW5) was at the time of his testimony an employee of Standard Chartered Bank in the security Department.  In 1999 he was instructed to establish who had cashed the impugned cheques with a view to tracing the proceeds. After doing so he reduced his findings into a flow chart (P. Exhibit 21). The flow chart will be discussed later in the Court’s rendition.  In cross-examination, he explained that he looked at each and every cheque in question.  That although the Bank’s cashiers are trained to check whether cheques are in order, they are not experts.  His testimony was that signatures are never the same and that they do not have machines to check signatures.

18. Mercantile Life and General Assurance provided an Electronic Policy to the Plaintiff Company for the periods 1st September 1998 to 1st September 1999, then from 1st July 1999 to 30th June, 2000 and from 1st July 2000 to 30th June 2001. Although Lawrence Kangethe (PW4) had begun testifying on behalf of the Insurer, he did not finalize his testimony and it fell on Paul Malinda Ndonye (PW6) to give that evidence. The latter was an Assistant underwriter whose duties entailed evaluation of Clients risks.  He produced a schedule of electronic equipment (P. Exhibit 22a, 22b and 22c) of the Company covered by the Insurers.

19. The evidence of Mr. Anius Walli Pringel (PW2) may not turn out to be controversial. He was an accountant with KPMG Kenya.  He produced the Reports and Accounts for EAPI for the year ended 30th June 1999 (P Exhibit 20). He emphasized that the Report and Accounts were statutory and not investigatory.  He also stated that he was not a Forensic Accountant.  That the Accounts showed a sum of Khs. 11,296,00 being provision for cash fraud under investigation.

The Defence

20. As noted earlier, the case against the 7th, 8th, 9th, 10th, 11th and 12th Defendants was compromised and the Company makes no claim against them.  The 1st and 2nd Defendants filed a joint Defence as did the 3rd and 4th Defendant and the 5th and 6th Defendants. All Defendants deny any participation in any fraud allegedly perpetrated on the Plaintiff. Separately, the 2nd Defendant avers that on various occasions the Directors of the Company sent him to the Bank to cash cheques on behalf of the Company but on all such occasions, the cash was escorted back to the offices by Riley services Limited (a security firm) and the Defendant did not access the money. It is the plea of the 2nd Defendant that he did not receive any warning of any shortfall and the Plaintiff is estopped from making the current claim after its Directors had fled.

21. Alexander Njuguna Karanja (the 2nd Defendant) told Court that at the time material to this dispute, he was an Assistant Accountant with the Company.  His duties involved stock control reconciliation and he was also a Banking Officer recognized as an agent of the Company.  Part of his duties would be to encash cheques for and on behalf of the Company. There was a process to this. Authorized employees would raise requisition to have cash collected from the Bank.  That required the authorization by the Directors or the Financial Manager of the company.  A security company had been contracted to handle cash from the Bank.  That he was not authorized to handle cash without security.  That he would travel separately with the security officers to the Bank. Once there, he would present the cheque for encashment.  The money would be put in a box and a seal placed on it in his presence. He would sign a document confirming the sealing.  The security firm used at that time was Riley Services Limited. Once the money reached the Company, the Senior Finance Officer or Director would confirm that the seal was not broken and the box would be open and the cash distributed according to the needs.

22. The witness was able to identify various cheques whose value total about Kshs. 2. 5 million.  It was his evidence that he may have cashed the cheques.  He denied having access to the cheques and did not know in whose custody the cheque book was kept. He however knew that Mr. Wilson Mwangi (the 1st Defendant) was the one who would draw the cheques.

23. At the material time John Macharia Mwangi (the 3rd Defendant) was an Account Clerk with East African Building Company.  On the side and on a part time basis he did supplies in partnership with the 1st Defendant who was his partner.  The two formed the 5th and 6th Defendants.  The 5th Defendant was a Supplier of General Office Stationery.  While the 6th Defendant was partly a Service Company and Supplier and installer of Computers and Networks.  His evidence was that, after initially operating at Pangani area the two Enterprises relocated at the end of 1998 to Old Nation Building.

24. The witness stated that the Company was one of its clients and received payments for the goods supplied or services it provided.  His evidence was that the firms’ were financed by borrowing taken by the 1st Defendant and himself.  He for instance, borrowed money from Kenya Banker’s Sacco.

25. His evidence is that sometime in August 1999 the offices of the firms and his and the 1st Defendant residences were raided by police officers.  During the raids the police officers destroyed their computers and took away various documents. These included several agreements with their Suppliers and Clients.  And in particular they took away agreements entered with the Plaintiff.  The witness claims that they were unable to recover these documents. His evidence was that he and the 1st Defendant were subsequently arraigned in Court in a criminal case in which they were eventually acquitted.

26. Moffat Wachira Muraga (the 4th Defendant) is a brother to the 1st Defendant. They operated a joint account at the East African Building Society. His evidence was that his brother was employed and made deposits into their Account. He denied that the deposits were from funds given to them by their parents who were long deceased.

27. So as to testify, Wilson Mwangi Muraga (the 1st Defendant) had to travel from Boston in the USA where he currently resides.  He confirmed that the 4th Defendant was his brother and testified that the 3rd Defendant was a former business partner while the 2nd Defendant was a co-worker at the Plaintiff Company.  While at the Company he worked at the Accounts Department directly reporting to the Managing Director.  His duties included writing cheques for short term payments, Bank reconciliations and payments made.  On the side he was a part owner and Director of the 5th and 6th Defendant. He together with the 3rd Defendant had formed the firms to supplement their income.

28. On learning that the Company was in need of IT consultancy and a change of IT hardware, he approached Mr. John Small the Managing Director with the possibility of offering such services and supplying such goods.  The Managing Director obliged and they were awarded a Tender.  The firms provided the services and supplied the goods and were subsequently paid.

29. The witness says that he was therefore surprised when sometime in mid 1999, police broke into his house raided it and carted away certain documents,  and that although he was subsequently charged with criminal offences he was acquitted.

30. As evidence that the firms were trading with the Company, he stated that he personally sourced the goods supplied from Dubai.  That the business with the Company was their large break and was the largest Account.  Under cross-examination, he stated that whilst they traded with persons other than the Company, the invoices of the other vendors were taken away by the police and they were  only able to retrieve a few documents that were enroute from Pangani to their new offices.

31. His evidence was that the 4th Defendant was not involved in his business and that they had pooled money from friends to finance the tender and to set up office.  In respect to the Bank Account of the 6th Defendant, he told Court that other than 2 deposits of Khs. 20,000 and Ksh.17. 000 all other deposits were payments by the Plaintiff.  It was similar with the Bank Account of the 6th Defendant. Most of the Credits into their Account were payments by the Company.

32. His testimony was that after delivery the firms would raise invoices.  And that it was not possible for payment to be made without a voucher.

33. Answering a question in respect to his employment contract with the Company he was emphatic that he did not engage in any business that was in conflict with his duties at the Plaintiff Company.

The Determination

34. At the close of hearing of evidence, both sides were invited to file written submissions.  A time of 45 days from 30th May 2017 was specified as the outside date for the filing.  The Plaintiff filed their submissions on 19th June 2017 but as at the time of preparing this judgement, the Defendants had not.

35. As the Court turns to render its determination it needs to be noted that on 4th October 1999 the Plaintiff and the 7th, 8th, 9th, 11th and 12th Defendants entered the following compromise,

“1) By consent the 7th, 8th, 9th, 11th and 12th Defendants be and are hereby restrained from dealing with the Accounts held in the respective accounts by the 1st to 6th Defendants until further orders of this Court.

2) The suit against the 7th to 12th Defendants be marked as settled.

3) Issue of costs to the 7th to 12th defendants to be determined after the suit has been finalized.”

Apparent from this consent is that the only issue outstanding between the Plaintiff on the one hand and the 7th to 12th Defendants on the other is the question of costs.

36. Stemming from the pleadings, the evidence  and submissions filed, the Court sees the following as matters it must determine so as to resolve the dispute herein,

i) Does the acquittal of the 1st, 2nd and 3rd Defendants in Nairobi Criminal case No.2163 of 1999 automatically defeat the Plaintiff’s claim herein?

ii) If not, are the 17 cheques that are said to have led to a loss of Kshs. 16,312,217. 25 to the Plaintiff forgeries?

iii) Did the Plaintiff suffer a loss of Kshs. 16,312,217. 25 and if so did the Defendants unlawfully benefit?

iv) Is the Plaintiff entitled to the orders sought?

v) What is the appropriate order on costs?

37. It is common ground that owing to the loss allegedly suffered by the company, the 1st, 2nd and 3rd Defendants were arraigned in Court to face the following charges:-

‘Stealing contrary to Section 275 of the Penal code’:-

Count 1. On or about the 15th day of October 1998 at East Africa Packaging Industries Limited in Nairobi within the Nairobi area jointly with others not before court stole one cheque book containing 100 leaves all valued at Kshs.150 the property of East Africa Packaging Industries limited.

Count 2. On diverse dates between 18th day of March 1999 and 9th day of June 1999 at Standard Chartered Bank Industrial area branch in Nairobi within the Nairobi Area jointly stole Khs. 10,122,552. 85, the property of East Africa Packaging Industries Limited.

Count 3. On diverse dates between 1st day of February 1999 and 18th day of May 1999 at Standard Chartered bank Industrial Area branch in Nairobi within the Nairobi Area jointly stole Kshs.3,626,894. 40 the property of East Africa Packaging Industries Limited.

Count 4. On diverse dates between 15th day of October, 1998 and 23rd day of December 1998 in Nairobi within the Nairobi Area, being a servant to M/S. East Africa Packaging Industries Limited stole Khs.2,567,770. 00 the property of East Africa packaging Industries Limited.

38. Common ground as well is that after a hearing of the criminal case the trio were on 1st March 2001, acquitted under Section 215 of the Criminal Procedure Code. During the hearing of this matter, the Defendants sought to rely on the proceedings and judgment therein (D. Exhibit 1) to urge the futility of the Company’s claim herein.

39. The law contemplates that a Criminal proceeding involving same issues or substantially similar issues can run concurrently with a civil process. Section 193A of the Criminal Procedure Code is unequivocal on this:-

“Notwithstanding the provisions of any other written law, the fact that any matter in issue in any criminal proceedings is also directly or substantially in issue in any pending civil proceedings shall not be a ground for any stay, prohibition or delay of the criminal proceedings”.

40. It is nevertheless trite that where the two processes run, the success or failure of a civil claim is not pegged on the conviction or acquittal of a party to the civil process.  As submitted by the Plaintiff, Ngaah Jairus J. in Alfred Lumiti Lusiba vs. Pethad Ranik Shantilal & 2 others [2016] eKLR, aptly captured the relationship between the two processes in the following words,

“But even so, the viability of a cause of action in a civil claim does not necessarily stem from the conviction of a defendant in a criminal trial. Further still, the success or failure of a civil suit based on facts similar to those that a criminal prosecution is mounted does not necessarily depend on the conviction or acquittal of the defendant in the criminal trial; the outcome of a civil suit is independent from that of a criminal trial largely because the standard of proof required of a prosecutor in criminal prosecution is higher than that required of a claimant in a civil suit.  To sustain a conviction, the prosecution must discharge the burden of proof beyond all reasonable doubt that the accused committed the offence with which he is charged.  On the other hand, the claimant in a civil suit will only need to demonstrate on a balance of probability that the defendant is the tort feasor and as a result of his tortious act of omission, the claimant suffered some sort of loss or damage that would warrant a remedy”.

41. This rather patent position was acknowledged by Mwera J (as he then was) in these very proceedings when he declined to partially lift a freezing order given by this Court on 4th October 1999. The good Judge remarked,

“proof of the claim here may not necessarily be hinged on the acquittal in the criminal Court”.

42. That said what witnesses said on oath in the Criminal proceedings may, where related, be used to test the probity or veracity of evidence tendered herein.

43. The evidence by PW1 was that the loss to the company was effected through forgery of 17 cheques from one cheque book. The cheques are:-

Cheque NO.        Date          Amount      Plaintiff Exhibit No.

304506                15. 10. 98       320,520               12(a)

304509                5. 1.98           390,200               13(a)

304507                12. 11. 97        370,750               14(a)

304510                 19. 11. 98        390,200              15(a)

304522                 14. 12. 98       520,900               16(a)

304529                 23. 12. 98       570,200               17(a)

304526                 27. 01. 99      196,320. 75           3(a)

304535                 17. 2.99         972,426. 75          2(a)

304536                 15. 3.99         196,320. 75          1(a)

304539                 26. 3.99        790,296. 75           4(a)

304541                 30. 3.99        1,126,420             10(a)

304540                12. 4.99        1,607,539. 75         11(a)

304544                 27. 4.99        942,375. 20           5(a)

304542                 2. 5.99          1,972,655. 25        9(a)

304546                 10. 5.99        2,227,500. 95        8(a)

304547                 14. 5.99        725,474. 95           6(a)

304551                 7. 6.99          2,247,864. 50        7(a)

44. His further evidence, and as is clear from the cheques themselves, all the payments were made out of Account No.0106030069400 at Standard Chartered Bank Industrial Area Branch belonging to the Company.  Evidence, that is not controverted, is that PW1 was a signatory to that Account.  He nevertheless denied that any of the signatures appearing on all the 17 cheques belonged to him although they were similar to his signature.

45. In a bid to prove that the 17 cheques were forgeries, the Company enlisted the help of one S.M Mweu (PW8) who is a Document Examiner to examine the disputed signature. The witness produced a Report (P Exhibit 23a) in which he returned an opinion that the disputed signatures were simulated forgeries.  But that opinion is not without difficult because, firstly, some of the Documents which had the known signatures and used for comparison with the signatures on the cheques were photocopies.  That however was downplayed by the Document Examiner who stated that photocopies of specimens can be used so long as they are sharp. He then added,

“I was able to link the required writing, the signatures were clear in detail ,same with the writing, the writing did not have distortion at all and there was no problem of examining them”.

46. Another difficulty, perhaps more critical, was that the Document Examiner did not obtain specimen signatures directly from Mr. John Small and Anthony Ngugi. He obtained the documents said to contain the specimen signatures from one Mr. Ireri, presumably Counsel for the Company.  What the Company failed to establish was where Mr. Ireri himself got the specimen.

47. Absent other evidence, these difficulties somewhat reduces the probative value of the Report even without evidence to the contrary by the Defendant (note that the Defendants had indicated an intention to call a Document Examiner but failed to do so). To prove that there was something amiss with the cheques and that the Expert opinion was credible, the Company would have to look elsewhere for supportive evidence.

48. Two sets of Bank Statements for the troubled period were produced by PW1. In one set (P Exhibit 1b- 11b),none of the payments in respect to the impugned cheques feature. This first set is what is said to have been the true statements sent by the Bank. There was another set of statements (P Exhibit 2c-11c) which PW1 came across in the course of investigating the matter.  That set had entries of payments made out of the cheques.  A question to be posed is, if genuine, then why would the payment of the 17 cheques not feature in the Company’s real Bank Statements. Perhaps suggestive that the proposition by the Company that they were forgeries had some truth in it.

49. It is common ground that some cheques were indeed paid to the 5th Defendant and the 6th Defendant.  Those paid to the 5th Defendant are:-

Cheque No. 304526 ……………Kshs.196,320. 75

Cheque No.304535 …………….Kshs.972,426. 95

Cheque No.364539……………..Khs.790,296. 75

Cheque No.304544……………..Kshs.942,375. 20

Cheque No.304547……………..Kshs.725. 475. 75

To the 6th Defendant:

Cheque No. 364536……………..Kshs.940,626. 40

Cheque No.304541……………….Kshs.1,126,420

Cheque No.304540………………Kshs.1,607,539. 75

Cheque No.304542 ……………..Kshs.1,972,655. 25

Cheque No.304546……………….Kshs.2,227,506. 95

Cheque No.304551……………….Kshs.2,247,804. 50

50. The case for the Company is that these payments were fraudulent because no services were rendered or goods supplied by the 5th and 6th Defendants. The evidence of PW3 who was a computer Manager of the Plaintiff is that the Company did not requisition for any services or goods from the 5th and/or 6th Defendants.  Shown various Invoices (D Exhibit 1a- 11a) for goods allegedly supplied or services  by the 5th and 6th Defendants, he denied that the Company had ever ordered for the goods or sought the services.

51. To fortify their position the Company called evidence from Mercantile Life and General Assurance who had provided an electronic equipment policy over the electronic property of the Company for the period 1st September 1998 to 1st September 1999, then from 1st July 1999 to 30th June 2000, 1st July 2000 to 30th June 2001 (see The Policy Schedule and Policy Renewal receipt P Exhibit 22a, 22b, 22c). These are for periods which include when the 5th and 6th Defendants allegedly supplied certain Electronic goods to the Company.  None of the goods invoiced by the 5th and 6th Defendants appear in the schedule of the Policies.  The point made by the Company being that if the goods had been truly delivered then they would have been duly insured.

52. Now, Magpies Suppliers (the 5th Defendant) is a business name registered under the provisions of The Registration of Business Names Act under number 291961(P Exhibit 25).  Its owners are the 1st and 3rd Defendants.  Both in fact admit as much and also concede to be the joint owners of Munyer Enterprises (the 6th Defendant).

53. Who is to be believed?  The evidence of PW3 was that the supply of goods from Suppliers would be a request by way of a written LPO. The LPO, is emphasized, would be in writing and signed by the Purchasing Manager. The 3rd Defendant himself alluded to LPOs as follows:-

“Plaintiff did issue L.P.Os. L.P.Os were taken by Police.  L.P.Os were issued. The arrangement was once we got Plaintiff order by L.P.O we would supply the Goods ordered”.

Similarly the evidence of the 1st Defendant was that the LPOs were in writing.

54. That evidence is however in sharp contrast with the position taken by the 5th and 6th Defendant earlier in the proceedings. On 27th November 2001, the Company’s Lawyer sought, inter alia, the following particulars from the 5th and 6th Defendant,

“Particulars of Purchase Orders issued by Plaintiff in respect of the services”.

In response the lawyers for the Defendants Replied,

“The aforementioned listed goods, services were supplied at the request and instance of the Managing Director of the Plaintiff Company. The purchase orders were given verbally by the Managing Director. In the same vein the goods /services were supplied with the full knowledge/authority of the Plaintiff Company”. (My emphasis)

55. The dramatic shift in position can only be made by a person who is not entirely candid.  At one point the 1st, 3rd, 5th and 6th Defendants took the position that the purchase orders were verbal. That shifts to the position that they were by way of written LPOs. Obviously unable to produce none existing LPOs, they conveniently scapegoat the Police raid in their offices! This Court chooses to believe the Company. That the goods and services alleged supplied or rendered by the 5th and 6th Defendants were never in fact supplied nor rendered. That the Company had no reason whatsoever to pay the two firms. That the 1st and 3rd   Defendants who are the owners of the two firms used their positions in the Plaintiff Company to defraud the Company. This Court also finds believable the assertion by the Company that the cheques which facilitated payments to the 5th and 6th Defendants contained forged signatures and notwithstanding certain flaws discussed earlier in this decision, the expert opinion by the handwriting expert (PW8) is credible in respect to the conclusion that the signatures on the cheques were indeed forged and did not belong to Mr. Small or Mr. Ngugi (PW1).

56. The Company’s case is that the role of the 2nd Defendant in the fraud is different.  There is common evidence by the rivals herein that the 2nd Defendant was at all material times an Accounts clerk with the Company.  Amongst his duties was to collect cash from the Bank for payment of wages and other cash requirements.  In respect to wages, PW1 took Court through the following procedure.  The 2nd Defendant would prepare a summary of wages required which would have details of the employees particulars, hours worked and amount due. The summary would be forwarded to the Financial Account for approval.  At that time a Mr. Kajigi occupied the position. Upon authorization by the Financial Account, the documents would be forwarded to the 1st Defendant to raise a cheque requisition and a cheque for signature by one of the authorized signatories for encashment by the 2nd Defendant.

57. The witness then described how the 2nd Defendant would encash a cheque and collect the funds from the Bank.  I need not paraphrase it,

“The cash involved is Shs.2,562,770.  2nd Defendant was incharged of wages and stocks.  He was one of the authorized agents for collection of cash from the bank. The procedure was that he would present the cheque at the bank, money would then be delivered by armored services to the Plaintiff. We were using Riley services. The money used to be given to the security company by the bank.  They would then collect it and deliver it to the Plaintiff. The cash box used to be sealed. In an ideal situation, the fact that he was the payee would not have meant that he collected the cash. If procedures were followed, he would not have been paid the money directly. The system had gone on without any incidence until the 1st cheque in their series of cheques was made out to him. Prior to the 1st incident there was no occasion when money was signed for and did not come to the Plaintiff. I do not agree that we should be looking for the lost money from Riley security. The bank recognized our procedures.  The 2nd Defendant was recognized by the bank as an authorized payee. The bank was also fully aware of our procedure for collecting that cash.  However, since he was an authorized agent the bank would have been in order to pay the cash to the 2nd Defendant”.

58. The position of the 2nd Defendant substantially agrees with the procedure outlined by PW1. Indeed, the 2nd Defendant had raised the following defence,

“The Second Defendant avers that on certain occasions, the Plaintiff’s Directors sent him to the Bank to cash several cheques on behalf of the Plaintiff but on all those occasions, the cash was always escorted back to the offices by RILEY SERVICES LTD a Security Company and that the said Defendant did not touch the money himself, but the seals to the Cash Box would only be broken by the Directors and/or Senior Staff.  The second Defendant did not receive any warning of any short and the Plaintiff is estopped from making the instant claim after the fleeing of its director”.

59. In addition, the 2nd Defendant’s evidence was that because of the requirements of insurers of the security firm, he would not ride in the security vehicle to and from the Bank.  And on the seal to be placed on the box in which the cash would be put, the witness stated that the seal was placed in the Bank in his presence and he would sign a document to confirm that the seal was not broken. The Box with the money inside would be transported to the Company by the security firm.  The money would be received by either a Senior Finance Officer or Directors would first confirm the seal was unbroken and then

‘allocated the duties either counting money or distributing depending who requested for it’.

60. The Company’s case is that using forged cheques, the 2nd Defendant stole a total of Khs.2,526,770/=. The particulars of the controversial cheques are :-

Dates                     cheque No.          Amount

15th Oct. 1998        304506                320,520

5th Nov. 1998         304509                390200

17th Nov.1998        304507                370,750

19th Nov.1998        3045                     390,200

26th Dec.1998        904522                520900

23rd Dec.1998        304529                 570200

The 2nd Defendant does not deny encashing these cheques. Under cross-examination he stated,

“I am looking at the Plaintiff’s cheque dated 15. 10. 98 for 320,520/=. The signatory was John Small and Mr. Anthony Ngugi. I do not remember cashing the cheque but I do not deny I cashed it.  The next cheque dated 5. 11. 98 for 390,200/-. The next 12. 11. 98 for 370,750/-. Next 19. 11. 98 for 390,200/= - 14. 12. 98 for 520,900/= - 23. 12. 98 for 570,200/=. I would not know if the cheques were forged”.

61. The cheques were presented for the Document Examination alluded to earlier in this decision.  Also, as earlier stated, the examination was not without flaws. Just to recap, whilst the document examiner made comparisons of the signatures on the controversial cheques with certain specimen signatories allegedly being of Mr. John Small and Mr. Ngugi, the trail connecting those specimen signatures to Mr. Small and Ngugi was not complete. The Documents said to contain the known signatures of Mr. Small and Mr. Ngugi being Plaintiffs Exhibit 23C and 24d respectively were said to have been given by a Mr. Ireri to the Document Examiner (see evidence of the Document Examiner).

62. The weak link in the evidence was that there was no evidence by Mr. Ireri (presumably the lawyer for the Company) as to where he obtained the specimen signatures. And when Mr. Ngugi (PW1) testified he was not given an opportunity to own, or otherwise, the specimen signatures and/or handwritings on the Documents constituting P Exhibit 24d. So whilst the Document Examiner found that the signatures on the 17 cheques were forgeries a doubt on the finding could have been raised because of the fog surrounding the source of the Specimen signatures. However, it has turned out that on the basis of other evidence, 11 of the cheques were used to make fraudulent payments to the 5th and 6th Defendants.  That evidence then corroborated the evidence of PW1 and the Document Examiner that the signatures on the 11 cheques were infact forgeries.

63. The point to be made in respect to the case against the 2nd Defendant is that the other 6 cheques (allegedly connected to the 2nd Defendant) were subjected to a similar Document examination as the 11 and they too, like the other 11, were also disowned by PW1 as forged.  In my view therefore, the Company has on the balance of probabilities also established that the signatures on the 6 cheques were forged.

64. The 2nd Defendant does not deny encashing the cheques but stated,

“I would not know if the cheques were forged”

If he is to be believed then he alone did not fall for the forgery as the Tellers of the paying Bank did not notice the discrepancies in the signatures.

65. The questions to be asked and answered in respect to this Defendant is whether the Company has established, to the threshold required by law, that either,

i) The 2nd Defendant knew about the forgery and was a member of the syndicate or

ii) Having collected the money from the Bank, the money reached the Company.

66. The threshold, that is the standard of proof required in Civil claims founded on fraud, was stated by the predecessor of the current Court of Appeal in RATILAL GODHENBHAI PATEL VS. LALJI MAKANJI[1957] EA 314 at page 317 to be as follows:-

“Allegations of fraud must be strictly proved; although the standard of proof may not be so heavy as to require proof beyond reasonable doubt, something more than a mere balance of probabilities is required”.

67. In respect to the manner in which the 2nd Defendant ordinarily obtained and encashed Company’s cheques only PW1 and Defendant testified.  The evidence of PW1 was that the 6 cheques, like the other 11, were in the same cheque book that was unknown to the Company. And if one was to look at the cheque numbers of the 11 cheques they range from cheque Nos 304526-304551.  At least one cheque number 304529 of 23. 12. 98 drawn in the name of the 2nd Defendant falls between the serial numbers of the 11 cheques, which on overwhelming evidence have been found to be fraudulent.  Indeed 2nd Defendant himself testified as follows:-

“The 6 cheques were from the same cheque book retrospectively, I got to know that the other cheques of Khs. 16m together with these before Court were from the same cheque book”.

It is therefore believable as stated by PW1 that all the 6 cheque leaves were from a cheque book not with the Defendant Company.

68. The totality of the evidence by the Company is that the 6 cheques had forged signatures and obtained from a cheque book which was unknown to the Company. On the part of the 2nd Defendant he does not deny encashing the cheques. What then happened to the cash which was drawn from the Bank on the strength of these problematic cheques? Whilst sections 107 and 108 of the Evidence Act places a burden on the Company to prove the Civil culpability of the 2nd Defendant, I find that it had laid sufficient basis to require an answer from the 2nd Defendant in respect to at least two questions:-

i) Where did he obtain these 6 cheques which were not in the official custody of the Company?

ii) What happened to the cash upon the encashing of the 6 cheques?

69. In doing so, the Court is invoking the provisions of Section 112 of the Evidence Act which reads,

“In Civil proceedings, when any fact is especially within the knowledge of any party to those proceedings, the burden of proving or disproving that fact is upon him”

The 2nd Defendant had special knowledge of how and from  whom or where he obtained the 6 cheques and what happened to the cash upon their encashment. How did he react?

70. In his fairly extensive testimony the 2nd Defendant describes the process, in the ordinary course, in which a cheque would be requisitioned and given to him for encashment. He further described how he would encash the cheque and the cash would reach the Bank. What the 2nd Defendant did not do is to make specific reference as to how and from whom or where he obtained each of the 6 cheques. There was a deafening silence on this.

71. The same is true about the end process.  The 2nd Defendant stated that he would present a cheque to the Bank with his signature at the back to show that he is the payee. Once satisfied that the cheques were payable, the Bank would place the money in a box and seal it and give it to the security guard for transportation to the Company. Upon placing the seal, the 2nd Defendant would sign a document as confirmation that the seal was intact. The cash would be transported in a different vehicle from that used by the 2nd Defendant. Once the sealed box reached the Company, either a Director or a Senior Finance Officer would receive the money from the security company.  Upon confirming that the seal was not broken, he or she would open it and remove the cash. The 2nd Defendant was emphatic that he had no access to the money from the 6 cheques and that the money reached the company.

72. Then came the big question. Did he have any document to prove this? Counsel for the Company had pressed on this issue in cross-examination. The 2nd Defendant remarked,

“I don’t have anything to show that the money was received by the Company.  The money was paid to money (?) but was handed to Company as normal. I have nothing to show that money was handed to the Company”.

This must be contrasted with what he had earlier told Court,

“I would sign a document to show seal was not broken. If Company gave me access I would have the document signed by guard and me”.

73. The 2nd Defendant would have known, from advise of his Counsel, that access to those documents (if they truly existed) would be bespoken by a request for discovery, production and inspection of documents provided under the Civil Procedure Rules.  There was no such request. The net effect is that the 2nd Defendant did not discharge his burden of explaining where he got the 6 cheques and where the money drawn on the strength of the cheques ended

74. I reach a decision that there is strong and cogent evidence, stronger than a balance of probabilities, that the 2nd Defendant bears responsibility for the loss of Kshs.2,562,770 suffered by the Company paid out through the 6 cheques.

75. In reaching this decision the Court is not unaware that the 2nd Defendant had asserted that the 6 cheques were paid out when the Company’s account was overdrawn and payment therefore required prior approval. While there was evidence that a senior official of the Bank made the approvals, it was not clear whether she consulted the Company before doing so.  In the Criminal proceedings Rose Munyau (PW3 therein)an employee of the Bank at the material time, had testified in respect to one of the 6 cheques,

“one of the cheques bore my signature on the reverse, confirming funds as account was overdrawn. I referred the cheque to our Credit people to authorize payment”.

76. Even in totality of all the evidence no inference can be drawn that the Bank consulted the Company before paying the 6 cheques and further no inference can be made that the company was aware that the 6 cheques were being encashed.

77. I turn to a different aspect of the Plaintiff’s case.  On 8th November 1999, the Court granted orders in favour of the Plaintiff freezing various accounts belonging to the 1st, 2nd, 3rd, 4th, 5th and 6th Defendants. Those orders subsist todate. PW5 had been mandated to trace the monies paid into the Account No.0120-129020-00 belonging to the 6th Defendant through the following 6 (of the 17 forged cheques).

Date          cheque NO.         Amount

18. 3.99         304536                 Kshs.940,626. 40

19. 4.99        304540                Kshs.1,607,539. 75

30. 3.99        304541                 Kshs.1,126,420

03. 5.99       304592                 Kshs.1,972,655. 25

12. 5.99        304546                 Kshs.2,227,50. 99

09. 6.99       304551                 Kshs.2,247,804. 50

Not surprising a substantial amount of the money was then paid out into the personal and individual accounts of the 1st and 2nd Defendants and two joint accounts in the name of the 1st Defendant and the 4th Defendant.  Unsurprising because it was established beyond peradventure the 6th Defendant Firm belonged to the 1st and 2nd Defendant jointly.

78. However, this Court does not find the 4th Defendant culpable. No evidence was led to establish that he was either part of the fraudulent scheme or aware of it.  His testimony was that a very substantial sum of the money deposited into this joint account was deposited by his brother (the 1st Defendant). He had however stated that he had from time to time made certain deposits.  If this were true then some of this money may well have comingled with the money that was fraudulently obtained from the Company and deposited therein. What amount and when deposited by the 4th Defendant would be an issue in the special knowledge of the 4th Defendant? Once established, as it has been done, that certain monies obtained from the fraud was deposited in the joint account, the 4th Defendant bore the onus to prove that some of the money therein came from him. Having failed to do so then the money in the joint accounts and under attachment will have to be called up to answer the Company’s claim.

79. One other issue that remains is who should meet the costs of the suit filed against the 7th – 12th Defendants but subsequently settled.  The only claim against these financial institutions was that the first 6 Defendants had accounts with them into which the proceeds of crime had been deposited. The Plaintiff had sought the following order against the Financial Institutions,

“An injunction order restraining the 7th, 8th, 9th, 10, 11th and 12th Defendants, their servants and/or agents from releasing the funds in the names of the 1st, 2nd, 3rd, 4th, 5th and 6th Defendants”.

One must wonder whether the Plaintiff suit was more efficacious by including these 6 Defendants. This Court is not told by the Plaintiff that it was not sufficient for it to seek an order against the 1st – 6th Defendants and to merely serve it on the financial Institution for enforcement. The joinder of the Institutions would only have been necessary if it was shown that they would be or were reluctant to obey such a Court order.  The (6) were not necessary parties and the Plaintiff will have to meet the costs they have incurred for being unnecessarily drawn into a fight that did not concern them.

80. This is the determination of the Court.

81. 1 (i) There shall be judgment for the Plaintiff as against the 1st, 2nd,3rd, 5th and 6th Defendants jointly and severally for the sum of Khs.16,312,217. 25.

(ii) Of the above sum, the 2nd Defendant is liable to the extent of Ksh.2,562,770/=.

(iii) The sums in paragraphs (i) and (ii) above shall attract interest at Court rates from the date of filing suit.

(iv) Costs of The Plaintiff shall be against the 1st, 2nd, 3rd, 5th and 6th Defendants jointly and severally.

81. 2 The suit against the 4th Defendant is dismissed but with no orders as to costs.

81. 3 The Plaintiff shall meet costs of the 7th – 12th Defendants on the compromised claim.

81. 4 The money currently under attachment and all interest therein shall continue to be attached so as to answer such portion of the Plaintiff’s claim as it shall satisfy .

Dated, Signed and Delivered in Court at Nairobi this 15th day of February 2018.

F. TUIYOTT

JUDGE

PRESENT;

Kabaiko for Plaintiff

Njenga for 1st – 6th Defendants

Dennis -  Court Clerk