Guaranty Trust Bank (Kenya) Limited (formerly Fina Bank Limited) v George N. Nyandoro, Edwin Orare & Crestwing C. A. Limited [2019] KEHC 1808 (KLR) | Bank Customer Relationship | Esheria

Guaranty Trust Bank (Kenya) Limited (formerly Fina Bank Limited) v George N. Nyandoro, Edwin Orare & Crestwing C. A. Limited [2019] KEHC 1808 (KLR)

Full Case Text

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA

AT NAIROBI

CIVIL APPEAL NO. 468 OF 2016

GUARANTY TRUST BANK (KENYA) LIMITED (formerly FINA BANK LIMITED).....APPELLANT

-VERSUS-

GEORGE N. NYANDORO...............................................................................................1ST RESPONDENT

EDWIN ORARE................................................................................................................2ND RESPONDENT

CRESTWING C. A. LIMITED........................................................................................3RD RESPONDENT

(Being an appeal from the judgement of Hon. Mr. L. Kassan Principal Magistrate

in Nairobi Civil Suit no. 6958 of 2012 delivered on  14th June 2016)

JUDGEMENT

1)   On 14th June 2016, Hon. L. Kassan, learned Senior Principal Magistrate delivered a judgment in the sum of ksh.3,046,000/= plus interest and costs in favour of George Nyandoro and Edwin Orare, the 1st and 2nd respondents herein respectively and against Crestwing C. A. Ltd and Guarantee Trust Bank Ltd (formerly Fina Bank Ltd), the 3rd respondent and appellant herein respectively, before the chief Magistrate’s Court, Milimani Commercial Court.

2)   The appellant being dissatisfied preferred this appeal and  put forward the following grounds of appeal;

i.  The learned trial magistrate erred in law and fact in making a finding that the appellant was liable for a contract dated 21st September 2012 between the 1st and 2nd respondent together with 3rd respondent.

ii. The learned trial magistrate erred in law and fact in failing to consider the overwhelming evidence in court that there was no privity of contract between the appellant and the 1st and 2nd respondent.

iii.  The learned trial magistrate erred in law and fact in failing to find that the 1st and 2nd respondent were not account holders of bank account number 1210200137 held by the appellant.

iv. The learned trial magistrate erred in law and fact in finding that the appellant unlawfully restricted the bank account number 1210100137 belonging to the 3rd respondent.

v. The learned trial magistrate erred in law and fact in failing to find that by the time the 1st and 2nd respondent instituted the suit the 2nd respondent was not a signatory to the 3rd respondent’s account.

vi. The learned trial magistrate erred in law and fact in finding that the appellant was in breach of contract thus illegally dishonouring the plaintiff’s cheque number 000567.

vii. The learned trial magistrate erred in law and fact in finding liability as against the appellant in absence of participation of the 3rd respondent in the proceedings.

viii. The learned trial magistrate erred in law in failing to recognize the corporate capacity of the 3rd respondent in the proceedings.

ix. The learned trial magistrate erred in law and fact in finding that the appellant had illegally and unlawfully restricted the 3rd respondent’s account.

x. The learned trial magistrate erred in law and fact in failing to appreciate the communication and board resolution from the 3rd respondent dated 22/11/2012.

xi. The learned trial magistrate erred in law and fact in dismissing the appellant defence that the 1st and 2nd respondents were not directors or signatory of the 3rd respondent before instituting the suit.

xii. The learned trial magistrate erred in law and fact in finding that there was collusion between the appellant and 3rd respondent to restrict the account number 12101000137 from the 1st and 2nd respondent.

xiii.       The learned trial magistrate erred in law and fact in finding that the appellant is liable to pay the plaintiffs the special damages of kshs.3,046,000. 00

3)   When this appeal came up for hearing, learned counsels appearing in this matter recorded a consent order to have the appeal disposed of by written submissions.  I have re-evaluated the case that was before the trial court and considered the rival submissions together with the authorities cited and supplied.

4)   It is important at this stage to set out the brief background of this dispute.  On 21st September 2012, George N. Nyandoro, the 1st respondent herein got into a joint venture agreement with Crestwing C. A. Ltd, the 3rd respondent herein whereof the 1st respondent would finance the 3rd respondent’s business ventures and that all returns and or proceeds would be channeled through the 3rd respondent at its Industrial Area Branch.

5)   It was also expressly stated that the 1st respondent being the principal financier, would have the first priority to recoup his investments and that the account as held by Guaranty Trust Bank (K) Ltd (formerly Fina Bank Ltd), the appellant herein would be run by joint signatories, one appointed by the 1st respondent and the other by the 3rd respondent.  The 3rd respondent committed itself to provide the appellant with minutes of the resolution to alter the list of signatories to the  account identified in the joint venture agreement to include the 1st respondent’s nominee.

6)   The 3rd respondent too agreed to issue a letter instructing the appellant of the proposed changes to be effected with the appellant with a view of accommodating the parties to the agreement.

7)   On 26. 9.2012, the 3rd respondent passed a resolution executed by all the directors of the company to the effect that one Edwin Orare, the 2nd respondent herein, was now a signatory to the aforementioned account.  The aforesaid resolution was served upon the appellant which meant that the signatories of the account were Jeremiah Timaiyo Mutonde and Edwin Orare.

8)   The 1st respondent thereafter furnished the 3rd respondent with monies to finance the business venture.  On 15. 11. 2012, money was wired into the account by a mutual customer and the same was confirmed to Edwin Orare by an officer of Guaranty Trust Bank (K) Ltd (formerly Fina Bank Ltd), the appellant.  It is said that on 17. 11. 2015 two cheques no. 00657 for ksh.1,570,000/= and no. 000659 for ksh.100,000/= were drawn and duly signed by both signatories which money was transferred to the 1st respondent as his returns from the venture.

9)   When the aforesaid cheques were presented on the due dates to the appellant for payment, it is said the appellant refused to honour both cheques without attaching any reason the dishonor.  The 1st respondent later on learnt that the 3rd respondent on 22. 11. 2015 had passed a resolution to revoke the appointment of Edwin Orare (2nd respondent) as a signatory to the account.  It also became apparent that the money that the 1st respondent was entitled to receive had been withdrawn without the 2nd respondent’s signature.

10) On the basis of the above chronology of events, the 1st and 2nd Respondents sued the appellant claiming both general and special damages.  The learned Senior Principal Magistrate heard the case and came to the following conclusions: First, that the agreement between 1st respondent and the 3rd respondent was alive.  Secondly, that the resolution passed by the directors of the 3rd respondent to remove the 2nd respondent as a signatory of the bank account went against the rule of natural justice because they did not involve the 2nd respondent.  Thirdly, that the bank (appellant) was negligent in changing the names of the signatories without looking at the resolution.  Fourth, that the bank was duty bound to protect parties money whether they are in the own name or in the name of a company which does not belong to them.

11) Though the appellant put forward a total of thirteen (13)  grounds of appeal, those grounds may be summarized to four broad grounds:

i.  Whether there exist a bank-customer relationship between the appellant and 1st and 2nd respondent.

ii.  Whether the appellant owed a fiduciary duty to the 1st and 2nd respondent.

iii. Whether there was a privity of contract between the appellant and 1st and 2nd respondents.

iv. Whether the action had been overtaken by events since at time of its institution the 2nd respondent  was no longer a signatory to the account.

12) On the first issue as to whether there was a bank-customer relationship between the 1st and 2nd respondents and the appellant.  It is the submission of the appellant that the agreement dated 21. 9.2012 entered between the 1st respondent and the 3rd respondent who is an account holder with the appellant, did not elevate the position of the 1st and 2nd respondents as account holders.

13) It is also argued that the agreement did not affect the original bank-customer relationship between the appellant and the 3rd respondent.  The appellant further argued that it was the 3rd respondent as its customer to communicate to the appellant and issue any instructions on matters pertaining the account and not any other person including the signatories.

14) It is the submission of the 1st and 2nd respondents on the other hand that the appellant was bound to act within the mandate given to it by the 3rd respondent.  It was pointed out that the mandate introduced by the agreement entered between the 3rd respondent and the appellant recognized the 3rd respondent’s bank account as the account to be used solely for the projects stated in the agreement.

15) According to the 1st and 2nd respondent, the agreement meant that the 3rd respondent ceased to be the sole holder of the said bank account.  Having considered the rival  arguments, I have come to the conclusion that the bank-customer relationship which exists in this case is that between the appellant and the 3rd respondent.  With respect, I agree with the submissions of the appellant that the joint venture agreement did not at all make the 1st and the 2nd respondents as account holders.  They were merely made bank signatories but not account holders.  They are not customers (account holders) of the appellant.  The truth of the matter is that no changes in the account can be effected without a resolution being passed by the 3rd respondent, the account holder.

16) The other issue which is closely related to the first issue is whether or not there is a privity of contract between the 1st and 2nd respondent and the appellant.  It is the submission of the appellant that there was no privity of contract between it and the 1st and 2nd respondents.  It was pointed out that the appellant was not party to the joint venture agreement, therefore it did not have any rights flowing from the agreement nor did any obligations arise.  The 1st and 2nd respondents appear to have concentrated their arguments on the issue of trust and fiduciary duty which will be discussed next.  There is  no attempt on the part of 1st and 2nd respondents to discuss the issue touching on privity of contract.

17) In my view, it is plain that the appellant was not privy to the contract entered between the 3rd respondent and the 1st and 2nd respondents.  It is apparent that the appellant was actually made aware of the aforesaid agreement in its capacity as the banker of the 3rd respondent.  The appellant did not have any rights under the agreement.

18) The third issue which commends itself for determination is whether there was a duty of care owed to the 1st and 2nd respondents by the appellants.  The appellant is of the submission that the appellant’s duty to the respondents is on the basis of the customer’s instructions that is to say that the bank had to ensure that the transaction on the 3rd respondent’s bank accounts were properly authorized by recognized signatories and to direct any inquiries or correspondences to the 3rd respondent.  It is argued that the appellant’s duty being that of a banker.

19) The appellant argued that it explained that the dishonour complained of was based on the appellant’s duty of care to the true owner of the cheque.  The appellant bank further argued that the transaction in question was carried out in good faith and in the ordinary course of business.  It is said the appellant undertook to delay the payment of the two cheques to enable it as the paying bank to ascertain the instructions and real intentions from its customer, the 3rd respondent.  The appellant bank stated that it received the 3rd respondent’s Board resolution removing the 2nd respondent as a signatory of the account.

20) It is the submission of the 1st and 2nd respondents that the appellant, being at all times aware of the contract and holding a position of trust as regards enforcement of the contract to the parties therein as regards payment, was mandated at all times to at least honour the existence of the contract and appreciate that a contract cannot unilaterally be revoked, altered or changed to the detriment of other parties.

21) It is the respondents’ argument that the appellant bank being the custodian of the monies which were instrumental in giving effect to the contract held a constructive trust towards them.  It was also pointed out that the appellant knowingly allowed itself to be used to cause a breach of contract that it knew would deprive the 1st respondent his right to access his monies thus being unfair to the 1st respondent.

22) Having considered the rival submissions, I am not convinced that the appellant in its actions assisted the 3rd respondent to commit a breach of trust.  It is apparent from the evidence tendered that the appellant bank acted as per the instructions of its customer, the 3rd respondent.

23) The appellant initially effected the instructions of its customer to allow the 2nd respondent to be a signatory to the 3rd respondent’s account.  In the second occasion  the appellant bank also effected the resolutions passed by the 3rd respondent’s Board of directors to remove the 2nd respondent as a signatory to the account.  There was no evidence that indicated that the appellant bank’s representative participated in the 3rd respondent’s board meeting which passed the aforesaid resolutions.  There is no doubt that the bank owed a duty of care to its bank holders and to some extent the account signatories.  However, in this case there is no iota of evidence that the appellant bank breached the duty of care.

24) The final issue is whether the suit had been overtaken by events since it was filed after the 2nd respondent had been removed as a signatory of the account.  It is the submission of the appellant that the proper party to bring this suit is the 3rd respondent and not the 1st and 2nd respondents.

25) It is argued that the alleged wrong was committed against a company therefore the 1st and 2nd respondents had no locus standi.  It is also stated that the suit was instituted by persons who are neither shareholders nor directors of the 3rd respondent.  The 1st and 2nd respondents are of the submission that they properly instituted the suit.  A cursory look at the pleadings will reveal that the 1st and 2nd respondents had locus to institute the suit.  The joint venture agreement executed between 1st and 3rd respondents is the main basis of this suit.

26) In the end, the appeal is found to be meritorious.  The appeal is allowed.  Consequently, the judgment against the appellant is set aside and is substituted with an order dismissing the suit as against the 2nd defendant.  Costs of the appeal and the suit are awarded to the appellant.  Since the 3rd respondent did not challenge the decision of the trial court, the judgment against the 1st defendant now 3rd respondent stands undisturbed.

Dated, Signed and Delivered at Nairobi this 13th  day of November, 2019.

..........................

J. K.  SERGON

JUDGE

In the presence of:

....................................for the Appellant

..................................for the Respondent