Kabugi & another v Equity Bank Limited [2023] KEHC 25219 (KLR)

Kabugi & another v Equity Bank Limited (Civil Case 154 & 155 of 2019 (Consolidated)) [2023] KEHC 25219 (KLR) (Civ) (10 November 2023) (Judgment)

Neutral citation: [2023] KEHC 25219 (KLR)

Republic of Kenya

In the High Court at Nairobi (Milimani Law Courts)

Civil

Civil Case 154 & 155 of 2019 (Consolidated)

AN Ongeri, J

November 10, 2023

Between

Wilson Macharia Kabugi

Plaintiff

and

Equity Bank Limited

Defendant

As consolidated with

Civil Case 155 of 2019

Between

Canary Investments Limited

Plaintiff

and

Equity Bank Limited

Defendant

Judgment

1. The plaintiffs Wilson Macharia Kabugi and Canary Investments Limited filed the originating summon(s) dated 18/7/2019 in HCCC No.154 and 155 of 2019 against the defendant Equity Bank Limited seeking the following issues for determination;i.Whether the freezing and/or continued suspension of account no. oxxx and oxxx respectively by the defendant is legal and if illegal whether it amounts to an arbitrary act.ii.Whether the defendant should be ordered to release the funds withheld in those accounts with interest at commercial rates of 14. 5% per annum from the May 14, 2012 when the amount were frozen, until payment in full.iii.Whether the defendant is liable to pay general damages, exemplary and aggravated damages to the plaintifsf for the blatant neglect and withholding of the plaintiff’s funds.iv.Whether the defendant is liable to costs.

2. The originating summon is supported by the affidavits of Peter Kiruri Muchwe, the Managing Director of Canary Investments Ltd in HCCC 154/2019 and that of Wilson Macharia Kabugi, the plaintiff in HCCC 155/2019 both sworn on 18/7/2019 in which they deposed that the holders of those current accounts as of May 14, 2012 the account had credit balances of Kshs. 3,844,463. 85 and 815,566. respectively.

3. On the same day they went to the bank for their normal transactions but the teller referred them to the branch manager who informed him that his account had been frozen.

4. After enquiry they found out that some deposits made in the accounts by a customer Thayu Kamau were suspected to have been fraudulent.

5. Sometimes in May 2012 Thayu Kamau was arrested and charged at the Chief Magistrates Court at Nairobi in Criminal Case No. 698 of 2012.

6. Subsequently they proceeded to the Bank and they were informed that the accounts would remain suspended until the conclusion of the aforementioned case.

7. The matter was heard and determined and a ruling delivered in 16/11/2018 found that the accused had no case to answer and acquitted him under section 210 of the Criminal Procedure Code. Despite furnishing the defendant with a copy of the ruling the defendant refused to release the funds prompting the proceedings herein.

8. The defendant filed replying affidavits sworn by Kariuki Kingori the Manager Legal Services dated 25/9/2019. In it he deponed that this suit emanated from a transaction where the cheques issued were not genuine.

9. Further that the defendant acted in the only prudent way available to ensure that a crime was not committed. At that point the plaintiffs’ accounts were frozen and the matter was reported to the police.

10. There after the funds were transferred back to the accounts of Western Brokers Limited and therefore the defendant does not hold any monies owed to the plaintiff.

11. The parties filed written submissions as follows; the plaintiffs submitted that the Bank-Customer relationship is contractual in nature and a bank has a fiduciary duty to its customers to exercise reasonable care.

12. The plaintiffs argued that the defendant arbitrarily froze the plaintiffs’ bank accounts without their knowledge or consent which was a breach of its contractual and fiduciary duty. The defendant should have served the plaintiffs with a notice before freezing the account.

13. The plaintiffs argued that the defendant’s actions have irreparably prejudiced the plaintiff’s business in that he has not been able to access his bank account.

14. Further that the defendant has been utilizing the plaintiffs’ deposits illegally and should be ordered to refund the money with interest at commercial rates.

15. The plaintiff further submitted that the defendant blatantly refused to appreciate the magnitude of the damage it has subjected that plaintiffs and subsequently they are entitled to not only an award of general damages but also exemplary and aggravated damages.

16. The defendant submitted that it was warranted and obligated to freeze the plaintiffs’ accounts as they were flagged to have illegally and unjustly received monies which were as a result of stolen cheques.

17. The plaintiffs were consequently informed of the developments summoned and his account frozen. The defendant said they legally froze the plaintiffs’ bank accounts to avert the funds being withdrawn by the plaintiffs and therefore falling into the wrong hands.

18. The defendant argued that investigations revealed that the cheques were stolen and the deposit into the Plaintiff’s bank accounts were made by mistake or fraudulently. It followed that the defendant ought to lawfully refund the funds to the rightful owner. That furthermore the funds never belonged to the plaintiffs and therefore the same were not their property whatsoever.

19. The defendant argued that article 40 of the Constitution protects the right to property and such protection does not extend to property which has been unlawfully acquired. The funds never belonged to the plaintiffs and therefore they have no legal claim against the defendant.

20. Further that the plaintiffs did not suffer any loss or injury and that they are not entitled to general damages or exemplary damages. The defendant said that they acted in good faith to safe guard the funds that had been deposited to the plaintiffs’ account.

21. The issues for determination as stated in the originating summons are as follows;i.Whether the freezing and/or continued suspension of account no. oxxx and oxxx respectively by the defendant was legal and if illegal whether it amounts to an arbitrary act.ii.Whether the defendant should be ordered to release the funds withheld with interest at commercial rates of 14. 5% per annum from the May 14, 2012 when the amount was frozen, until payment in full.iii.Whether the defendant is liable to pay general damages, exemplary and aggravated damages to the plaintiff for the blatant neglect and withholding of the plaintiff’s funds.iv.Whether the defendant is liable to costs

22. On the issue as to whether the freezing and/or continued suspension of accounts no. oxxx and oxxx respectively by the defendant was illegal and whether it amounted to an arbitrary act, I find that the Defendant initially suspected that the accounts were used for illegal activities.

23. However, after Thayu Kamau was acquitted on16/11/2018, the Defendant should not have continued freezing the said accounts, I find that there was no basis for continuing with the freezing order.

24. I find that there is no evidence that the funds were stolen and the Defendant has no evidence that the same were ever released to any other party.

25. Although the Defendants filed an Application dated September 25, 2020 to enjoin a 2nd defendant, the Defendant was not able to serve the proposed 2nd Defendants with process and I find that no documents were availed to show that the funds were ever wired to the alleged 2nd defendants.

26. The defendant should release the funds forthwith and I do order release of the same to the plaintiffs respectively.

27. On the issue as to whether the defendant is liable to pay general damages, exemplary and aggravated damages to the plaintiffs for the blatant neglect and withholding of the plaintiffs’ funds, I find that the same are not payable in suits based on contract.

28. General damages for breach of contract are in the form of special damages and they must be specifically pleaded and proved.

29. I rely on the case of Barclays Bank of Kenya Limited v Mema (Civil Appeal E011 of 2021) [2021] KEHC 333 (KLR) (Commercial and Tax) (3 December 2021) where Justice Majanja had the following to say;“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. This is principle is encapsulated in the Latin phrase restitution in integrum (see Kenya Industrial Estates Ltd v Lee Enterprises Ltd NRB CA Civil Appeal No 54 of 2004 [2009]eKLR, Kenya Breweries Ltd v Natex Distributors Ltd Milimani HCCC No 704 of 2000 [2004]eKLR). 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 (see Coast Bus Service Ltd v Sisco Murunga Ndanyi & 2 others, NRB CA Civil Appeal No. 192 of 92 (UR) and Charles C Sande v Kenya Co-operative Creameries Ltd, NRB CA Civil Appeal No. 154 of 1992 (UR)) ”.

30. In the case of Capital Fish Limited v Kenya Power and Lighting Company Limited [2016] eKLR), the court stated as follows;“The appellant apart from listing the alleged loss and damage, it did not… lead any evidence at all in support of the alleged loss and damage. As it were, the appellant merely threw figures at the trial court without any credible evidence in support thereof and expected the court to award them. Indeed, there was not credible documentary evidence in support of the alleged special damages”.

31. The plaintiffs are entitled to the funds in accounts No.oxxx and oxxx respectively plus interest at 14. 5% from the date the criminal case was dismissed on 16/11/2018 until payment in full.

32. On the issue of costs of the suits, I direct that each party to pay its own costs of this originating summons.

DATED, SIGNED AND DELIVERED ONLINE VIA MICROSOFT TEAMS AT NAIROBI THIS 10TH DAY OF NOVEMBER, 2023. ………….…………….A. N. ONGERIJUDGEIn the presence of:……………………………. for the Plaintiff................................. for the Defendant