Kamau v Stima Sacco Society Limited; Nderitu (Interested Party) [2025] KECPT 106 (KLR)

Kamau v Stima Sacco Society Limited; Nderitu (Interested Party) (Tribunal Case 51/E077 of 2023) [2025] KECPT 106 (KLR) (30 January 2025) (Judgment)

Neutral citation: [2025] KECPT 106 (KLR)

Republic of Kenya

In the Cooperative Tribunal

Tribunal Case 51/E077 of 2023

Janet Mwatsama, Vice Chair, B Sawe, F Lotuiya, P. Gichuki, M Chesikaw & PO Aol, Members

January 30, 2025

Between

Paul Kanja Kamau

Claimant

and

Stima Sacco Society Limited

Respondent

and

Paul Gachomo Nderitu

Interested Party

Judgment

1. The matter for determination is an Amended Statement of Claim dated 9th February 2023. In the Statement of Claim, the Claimant avers that he holds a salary account with the Respondent. That on 7th September 2016 he sold his motor vehicle registration number KBH 349D to the interested party and was given a cheque which he deposited with the Respondent. That later the Respondent reversed the cheque because it was fraudulent. The Claimant now claims that he suffered damages due to the 1st Respondent’s negligence. The Claimant, therefore, prays fora.Allow this claimb.Awards the claimant damages amounting to Kshs. 530,000/= against the 1st Respondent.c.Awards the claimant aggravated damages against the 1st Respondent.d.Costs of this suit against the 1st Respondente.Any other order this Honourable court may deem just and fit to makeThe Claimant filed a witness statement and a list of Documents in support of her claim.

2. The Respondent filed a Statement of Defence dated 19th May 2023. In their Defence, the Respondents aver that it is a complete stranger to the particulars of the alleged sale of the motor vehicle. They also state that the cheque allegedly deposited in the Claimant’s account was an uncleared forged cheque fraudulently drawn in favour of the Claimant. That the fraudulent cheque was erroneously cleared by its banker. The Respondents also put in a counterclaim against the Claimant in which he prays for;1. A declaration that the Claimant’s deposit of the forged cheque amounted to fraudulent activity and the claimant was indeed liable to reimburse the overdrawn funds and is liable to pay for the loss caused.2. A declaration that the Claimant has breached the bylaws of the respondent society and is liable to pay the penalties imposed therein.3. General damages for the loss, inconvenience and damage suffered4. Punitive damages5. Costs of this suit6. Interest at court rates on the above7. Any other relief deemed fit by this honorable Tribunal.

3. During the hearing, the Claimant testified. The Claimant averred that he posted his vehicle for sale in OLX and was willing to sell the vehicle to the person who would give him the best offer. That he sold his vehicle to one Paul Gachomo, but the Paul Gachomo who was arrested after he reported the matter to the police was not the correct Paul Gachomo. He also informed the court that the motor vehicle was recovered. He also testified that the Cheque was cleared on 9th September 2016 and was informed that it bounced on 9th November 2016.

4. One Donald Awuor, the Respondent’s Legal Officer testified for the Respondents. He informed the court that the cheque was cleared because there is a cheque clearance fee of Kshs. 500/-. He informed the court that the cheque was cleared and credited by Co-operative Bank. Later when the Respondent did an audit, they discovered that Co-operative bank had reversed the credit but had not informed them and that is when they informed the Claimant and debited his account with the amount. The witness further informed this Tribunal that when they asked Co-operative Bank about the matter, Co-op Bank informed the Respondent that the Cheque was fraudulent. He informed the Tribunal that the period was regular since the span of any cheque is 6 months, and that the Sacco is not a bank but just a financial intermediary.

5. Both parties filed their submissions.

6. In their submissions, the Claimants sought to establish that the 1st Respondents were negligent in how they handled the cheque, and that the Claimant should be refunded the Kshs. 530,000 which was reversed from his account.

7. In their submissions, the Respondents submitted that they cleared the cheque in good faith and in the ordinary course of their business. They also averred that the cheque was regular on the face of it and thus the bank was entitled to the protection of a collecting bank. That the Respondent reversed the cheque without any delay and that the Claimant cannot be said to be entitled to funds paid out of a fraudulent cheque and was liable to refund the same.

Analysis 8. This Tribunal has taken note of the pleadings filed by the parties, evidence adduced during the hearing as well as submissions of the parties. It is not in dispute that the Claimant was a member of the Respondent. It is also not in dispute that the Claimant deposited a cheque from the alleged sale of his motor vehicle with the Respondent, that the same was cleared and the Claimants bank account credited with the amount, and the funds later reversed when the bank realized that the cheque was forged. What is in dispute is whether the bank was entitled to reverse the cheque and debit the Claimant’s bank account the Claimant claims that the Respondent was negligent in allowing the cheque and that he suffered damages when the same was reversed. The Respondent on the other hand claims that the reversal was regular.

9. In the case of Mount Elgon Hardware vs United Millers Limited C.A No.19 OF 1996(UR) the court held that“it is elementary learning that in claims involving allegation of negligence the particulars of such negligence must be particularly pleaded …it is still the duty of the party alleging negligence to prove the same”

10. Further Halsbury’s Laws of England, 4th Edition at paragraph 662 at page 476 states as follows with respect to what is required to be proved in an action such as the Claimant’s:-“The burden of proof in an action for damages for negligence rests primarily on the plaintiff, who, to maintain the action, must show that he was injured by a negligent act or omission for which the defendant is in law responsible. This involves the proof of some duty owed by the defendant to the plaintiff, some breach of that duty, and an injury to the plaintiff between which and the breach of duty a causal connection must be established.”We will now consider the elements of negligence and whether the Claimants pleaded and proved the same.

11. There is a duty of care that arises out of the customer-banker relationship. The bank ought to take reasonable care when effecting the customer’s mandate such as clearing of cheques. Was this duty breached? It is not in dispute that the bank cleared the cheque despite it being a forgery. However, in their Defence of the Respondent, it states that it was only an intermediary and that it received the clearing instructions from the Co-operative Bank which included debiting the Respondent’s account.

12. In the case of Lipkin Gorman V Karpnale Ltd (1992) 4 ALL ER 409, Githinji JA, stated that“……………. In addition, cases relating to a collecting banker being sued in conversion and those relating to a paying banker sued for breach of contact raise different considerations. In the former case, it is for the (collecting bank) banker to establish that he collected without negligence, and in the letter (the paying bank) the burdens is on the customer to prove negligence. The statutory protection is also different in the two types of cases …..” (Emphasis ours)In this case, the Respondent is the collecting bank, while the Co-operative bank is the paying bank.Further, Section 3(2) of the Cheques Act, on the protection of the collecting bank provides as follows;-Where a banker, in good faith and without negligence and in the ordinary course of business —(a)receives payment for a customer of a prescribed instrument to which the customer has no title or has a defective title; or(b)having credited the customer's account with the amount of a prescribed instrument to which the customer has no title or a defective title, receives payment of the instrument for himself, the banker does not incur any liability to the true owner of the instrument by reason only of his having received payment of it; and a banker is not to be treated for the purposes of this subsection as having been negligent by reason only that he has failed to concern himself with the absence of, or irregularity in, endorsement of a prescribed instrument of which the customer in question appears to be the payee.

13. This court also feels that the customer should also take reasonable care not to mislead the bank. In the case of De Frias v Rodney 1998 BDA LR 15 held as follows:“Contributory negligence required the foreseeability harm to oneself. A person is guilty of contributory negligence, if she ought reasonably to have foreseen that if she did not act as a reasonable prudence person she might be hush and in reckoning must take into account the possibility of others being careless. All that is required here is that the plaintiff should have failed to take reasonable care for her own safety. I do not find that the plaintiffs conduct was in any way contributory negligence. In the agony of the circumstances she made an unsuccessful attempt to avoid the conclusion.”

14. The Claimant claimed and indeed testified that he sold his motor vehicle through the OLX platform. The Respondent informed this court, and this court has looked it up, that OLX platform has warned its customers not to accept cheques. Guideline No. 4 in the antispam guidelines requires OLX customers not to accept cheques to mitigate the risk of counterfeit or bounced payments. The Claimant did not heed to this direction, and we find that he contributed to his own misfortune.

15. From the above analysis, this court finds that there indeed exists a duty of care between the Claimant and the Respondent, however, we fail to see how this duty was breached. The Respondent accepted a cheque that was regular on the face of it, and even if we were to find breach of duty, then the Claimant would have been liable for contributing to that breach by his action of accepting a cheque from a customer whom they met in OLX platform.

16. The upshot of the above is that we find that the Claimant’s Claim lacks merit, and is hereby dismissed with costs to the Respondent.COUNTER CLAIMThe Respondent in its Defence dated 19th May 2023, filed a counter claim in which he seeks1. A declaration that the claimant’s deposit of the forged cheque amounted to fraudulent activity and the claimant was indeed liable to reimburse the overdrawn funds and is liable to pay for the loss caused.2. A declaration that the claimant has breached the bylaws of the respondent society and is liable to pay the penalties imposed therein.3. General damages for the loss, inconvenience and damage suffered4. Punitive damages5. Costs of this suit6. Interest at court rates on the above7. Any other relief deemed fit by this Honorable Tribunal.

17. On the first prayer of declaring that the Claimant’s deposit of the cheque amounted to fraudulent activity, this court finds that the Respondent has not shown how the Claimant willingly forged the cheque. There is no evidence that the Respondent did not receive the cheque from the alleged buyer. Indeed the Respondents have averred that the Claimant failed to heed the warning on OLX hence became susceptible to scam including the forged cheque. This prayer, fails.

18. On the second prayer of breaching the by-laws of the society, we find that the Respondents have not shown how the Claimant has breached the by laws of the society. The Respondents produced their by-laws and upon perusal of the sections highlighted by the Respondent, we find no provision that the Claimant can be said to have breached. In any case, going to court is the right of any citizen and cannot be said to go against any by laws.

19. On the third prayer, on general damages for loss, inconvenience and damage suffered, this court notes that general damages are awarded in instances where the a legal right or duty has been breached. An award of damages is not meant to enrich the party but to compensate such victim for the loss sustained. This is why the same should be specifically pleaded and proved. The Respondent has not shown the loss sustained, and how that loss relates to the Claimants actions. This court also notes that the Respondents reversed the amounts credited to the Claimants account immediately they noted that the cheque bounced, and this court fails to see how that would have occasioned any loss to the respondent. This prayer therefore, fails.

20. On the third prayer on punitive damages. Exemplary damages or punitive damages are damages awarded to punish or to deter. The type of harmful behavior that would warrant the award of punitive damages would be serious misconduct of the Claimant that was grossly and wantonly negligent or reckless. Although this Tribunal agrees that the Claimant was negligent in accepting a cheque from a buyer they met in OLX, no evidence has been adduced by the Respondent to prove recklessness or gross misconduct by the Claimant. Accordingly, this prayer fails.

21. Flowing from above the Counter-Claim is also found to be without merit and is hereby dismissed with no orders as to costs.

Summary1. The upshot of the above is that we find that the Claimant’s Claim lacks merit, and is hereby dismissed with costs to the Respondent.2. Flowing from above the Counter-Claim is also found to be without merit and is hereby dismissed with no orders as to costs.

JUDGMENT SIGNED, DATED AND DELIVERED VIRTUALLY AT NAIROBI THIS 30TH DAY OF JANUARY, 2025. HON. J. MWATSAMA DEPUTY CHAIRPERSON SIGNED 30. 1.2025HON. BEATRICE SAWE MEMBER SIGNED 30. 1.2025HON. FRIDAH LOTUIYA MEMBER SIGNED 30. 1.2025HON. PHILIP GICHUKI MEMBER SIGNED 30. 1.2025HON. MICHAEL CHESIKAW MEMBER SIGNED 30. 1.2025HON. PAUL AOL MEMBER SIGNED 30. 1.2025Tribunal Clerk MutaiMuchiri advocate for Claimant- PresentMs. Mwiti advocate for the Respondent presentMuchiri advocate – We pray for 30 days stay of executionMwiti advocate - No objectionTribunal orders :30 days stay of execution granted to the Claimant.HON. J. MWATSAMA DEPUTY CHAIRPERSON SIGNED 30. 1.2025