[1988] KECA 99 (KLR)

IN THE COURT OF APPEAL

AT NAIROBI

(Coram: Nyarangi, Platt & Gachuhi JJA)

CIVIL APPEAL NO 16 OF 1985

Between

SHIRAKU...................................................................APPELLANT

AND

COMMERCIAL BANK OF AFRICA.....................RESPONDENT

(Appeal from a decree of the High Court at Nairobi, Aganyanya J)

JUDGMENT

July 19, 1988, Nyarangi JAdelivered the following Judgment.

I agree with Platt JA’s elucidation of the background of the history of claims for dishonoured cheques.

I pass to consider the appellant’s contention that the sum of shs 15,000/=  warded by the High Court as damages is manifestly inadequate to compensate him for the injury and loss he suffered in the circumstances. Mr. Ombete for the appellant said liability is not in dispute, that the relationship of customer and banker was proved by evidence but that apparently the judge did not take into account the effect of the words “account closed’ which appeared on all the cheques which words were defamatory of the appellant and would have subjected him to criminal prosecution. Counsel argued that if the Judge had borne in mind the words “account closed’ the award would have been substantial. The appellant was a trader and the damages should have been greater than if the cheques had been endorsed with the words ‘refer to drawer’.

For the respondent, Mr. Fraser conceded that the dishonour of the four cheques was wrongful and was due to the negligence and carelessness of the bank. Reference was made to the notice of grounds for affirming the decision and it was thereafter submitted that the words ‘account closed’ imply the same thing to reasonable people as ‘refer to drawer’, being equally defamatory. It was contended that the evidence is far from clear if the plaintiff was a trader. The point was made that in the previous six months the plaintiff had given cheques which were properly dishonoured and therefore that his credit reputation was not high.

The appellant had contracted with a German transport organization to establish an agency for that organization in Western Kenya. In his evidence in chief the appellant said:

“I am self employed”.

In that short sentence he did not explain the nature of his self-employment. Later on is his testimony, the appellant stated that despite para 5 of the agreement between Kuehne and Nagel and the appellant, he was their representative. However that agreement refers to the appellant’s indication to “work for” Kuehne and Nagel and to promote Ocean freight business.

The appellant was assigned specific duties to conduct various activities for sea and air freight business, within the scope of the activities to furnish the firm with every information required by the company for marketing  operations and not to disclose during the period of the agreement any information relating to the companies’ business. He was paid a fee of shs. 9,000/= plus travelling expenses for using his car upto shs 2,500/=. He was not on the payroll of the company.

A trader is:

“ a merchant, a retailer. One who makes it his business to buy merchandise, goods, or chattels to sell the same at a profit...”

Black’s Law Dictionary,5th edition, page 1339. There is no evidence that as an agent the appellant was a merchant or retailer or that he bought and sold goods at a profit. The fact that he issued a cheque to the City Council for his rent, a cheque in favour of Sila Service Station, another to Dr. Owino and another to Advance Dry Cleaners Ltd does not mean that the appellant was a trader. The cheques issued were for his personal services and not for commercial transactions. The submission that the appellant was a trader, was in my judgment, of a somewhat astonishing breadth; My decision, therefore, is that the appellant was not a trader.

It is relevant for the purpose of assessing damages for a non-trader to remind oneself of the decision in Gibbons v Westminister Bank Limited[1939] 2 K.B. 882. The plaintiff, a customer of the defendant bank, delivered a cheque drawn on a branch of the defendant bank. The cheque was presented for payment and was dishonoured by the defendants on the ground that they had no sufficient funds in hand standing to the credit of the plaintiff’s account to meet it. But in fact the plaintiff had paid into her account in due time sufficient funds to meet the cheque but by the error of a servant of the defendant that was credited to another account. The plaintiff brought an action against the defendant who admitted that in breach of their contract with the plaintiff they had dishonoured the plaintiff’s cheque.

It was contended for the defendant that the plaintiff, not being a trader, was entitled to nominal damages. It was held that a person who is not a trader is not entitled to recover substantial damages for the wrongful dishonour of his cheque, unless the damage which he has suffered is alleged and proved as a special damage.

On the facts of the instant case, there can be no doubt that the commercial credit of the appellant was seriously injured, by the expression ‘Account closed’ on each of the four cheques. The effect of those words was to lower the reputation of the appellant in the minds of ordinary right-thinking people. It is conceivable that the words ‘Account closed’ negligently marked on a cheque are damning where ‘refer to drawer’ may not be. The decision in Wilson & another v United Counties Bank Ltd, [1920] AC 102 is not available to the appellant. There the bank had by its negligence in the discharge of its duties caused the bankruptcy of the customer. The damage to the appellant was wide because four cheques were negligently and wrongly marked “Account closed’. Because the appellant’s commercial credit was injured, the inference arises that pecuniary loss ensues.

In Patel v National & Grindlays Bank Ltd., [1969] E.A 76, a shopkeeper in Busia whose cheques were wrongly dishonoured although his account was in credit was awarded Shs 2,000 damages in 1968. The trader was sued in respect of one of the two cheques. The appellant here did not prove the damages he suffered as a special damage. He has however shown that his commercial reputation suffered. One of the four cheques was intended for the settlement of his petrol bill. The point is that nowadays non-traders write cheques in settlement of their bills In my judgment the trial Judge did not adequately consider the ill-effect of the bank’s wrongful acts on the reputation of the appellant. In the result it seems to me that the Notice of Grounds for affirming the decision must fail. On the basis of the decision in Patel v National & Grindlays Bank Ltd, and in all the circumstances of the case, I think that a temperate award would be shs 40,000/=. I would substitute that amount for the Shs.15,000/=. I agree with the order on costs proposed by Gachuhi JA. As Platt JA also agrees, it is so ordered.

Gachuhi JA.I have read the judgment prepared by Lord Nyarangi JA. and I agree with the reasoning and the conclusion reached therein.

Regarding the costs, the trial judge allowed 3/4 of the cost to the plaintiff, appellant. The trial judge did not give the reason for reducing the costs though he found that the plaintiff had proved his case including his travelling expenses. He awarded damages to the appellant.

Section 27 of the Civil Procedure Act 9 (cap 21) provides that the costs of and incidental to all suits shall be in the discretion of the court or judge and the court or judge shall have full power to determine by whom and out of what property and to what extent costs are to be paid, and to give all necessary directions for the purposes aforesaid. The proviso to the section provides:

“Provided that the costs of any action, cause or other matter or issue shall follow the event unless the court or judge shall for good reason otherwise order”.

Here, the trial judge did not give any reason for not awarding the plaintiff his full costs. Because no reason was given, the point was taken on appeal and we have been asked to interfere with the judge’s discretion in awarding 3/4 costs. In the absence of any explanation, we think the trial judge went wrong in not awarding the plaintiff his full costs. It is on this basis that we allow this appeal on this ground and award the plaintiff his full costs both on appeal and in the High Court.

Platt JA.I agree with the conclusion reached by Nyarangi and Gachuhi, JJA . I add a few comments in general.

In Waiguru v National Bank of Kenya. [1974 EA 339 at p. 347, Harris J left open the question whether nominal damages or substantial damages should be awarded, where a Bank wrongly failed to honour a cheque, when the Bank had sufficient funds to meet it. He assessed either shs 40 nominal damages or (shs 1,500) general damages. He did so, not being sure that Gibbons v Westminster Bank[1939] 2 K.B. 882 would be followed in Kenya. That is not surprising since it was a first instance decision and the reasoning in allowing Mr.s Gibbons only nominal damages shs 40/= can hardly be described as one of the landmarks of English law. It is a case of negative deduction.

Mrs. Gibbons had more than sufficient money in her account to pay her weekly rent by cheque. There was a confusion in the Bank and her cheque was wrongly dishonoured. She had to see her landlord. The latter took the view that Mrs. Gibbons would have to pay her rent in cash. That had two consequences, the first that Mrs. Gibbons’ credit would be no longer be relied upon, and the second that Mrs. Gibbons must now go to the inconvenience of obtaining cash and taking it to the landlord. It is not clear how serious that inconvenience was in terms of time and physical ability. It must have been greatly to her advantage to be able to post a cheque. But it is certain that she was embarrassed by the landlord’s attitude, and probably she felt threatened, since landlords do not take kindly to nonpayment of rent by a tenant.

These facts did not emerge at the trial because of a mistake in the pleadings. The jury assessed £50. 00 as damages, on the basis that Mrs. Gibbons did not need to allege or prove damage to her credit. When the exact basis of her claim was considered, Lawrence, J to modern astonishment, refused to let Mrs. Gibbons amend her plaint, and add damage to her credit, so that evidence could be led of the landlord’s demand. Without that addition only nominal damages were awarded.

The history of the claim for a dishonoured cheque began in Marzetti v Williams,(1880) 109 E.R. p.842. Lord Tenterden, C.J. explained in words which are well-known that:

“It is immaterial in such a case whether the action in form be in tort or in assumpsit. It is substantially founded on a contract; and the plaintiff, though may not have sustained a damage in part, is entitled to recover nominal damages. At the same time I cannot forbear to observe, that it is a discredit to a person, and therefore injurious in fact, to have a draft refused payment for so small a sum, for it shows that the banker had very little confidence in the customer. It is an act particularly calculated to be injurious to a person in trade.”

One would have thought that the result would have been that the plaintiff, a trader, would have received general damages. Not so, he received nominal damages because the had proved no actual damage. It was left to Rolin v Steward, (1854) 139 E.R under the leadership of Lord Compbell CJ to award substantial damages to a trader who had not proved actual damage. When the decision came to be reviewed Cresswell J relied on Lord Tenterden’s explanation set out above to show that a trader need not prove damage. Williams J taking up the other aspect of the problem declared:

“It cannot be denied that if one who is not a trader were to bring an action against bankers for dishonouring a cheque at a time when he had funds of the customer in his hands sufficient to meet it, and special damages were alleged and proved the plaintiff would be entitled to recover substantial damages.”

There are thus two conflicting aims operating. One is that a bank must not discredit a person by showing lack of confidence in him. The other is that though a person does wrong, another person is not entitled to claim redress, unless he alleges and proves injury. Without proof of injury a claim can only be brought as an exception. Lord Atkinson was skeptical in Wilson v United Counties Bank Ltd[1920] AC 102 at p 134 of the exception in favour of the trader. He said:-

“It may be that the existence of this apparently indisputable presumption that the dishonour of a trader’s cheque under the circumstances mentioned is necessarily injurious to him as a trader is the special feature which distinguishes this Class of cases from others and makes them exceptional.”

It is clear from Lord Atkinson’s speech in Addis v Gramohone Co Ltd., [1909] AC 488 at p.495 that the exceptions which were three in number and included the trader’s dishonoured cheque, would not be extended.

By the time Gibbonscame to be decided Lawrence J felt he could not extend the exceptions. But he voiced the concern which must have caused Harris J to leave the matter open, and has now troubled this Court, when he queried Counsel –

“It may well be that the credit of a non-trader is as valuable to him as is his credit to a trader. I see that Lord Tanterden said in Marzetti v Williams:

“It is a discredit to a person, and therefore injurious in fact, to have a draft refused payment for so small a sum for it shows that the banker had very little confidence in the customer.”

So the wheel has come full circle. Despite Lawrence J’s clear understanding of the importance to the ordinary person of his credit worthiness, the Judge turned the latter down, unless damage was pleaded and proved.

The right to redress has been built up cautiously as Sheridan J’s view of the cases in Patel v National and Grindlay’s Bank Ltd., [1969] E.A 76 shows. A further development is now necessary, for several reasons:

The basis lies in the contractual relationship of customer and banker, but with the added element of the payee built in. The bank knows that the drawer has obliged himself to pay the payee and it is for this reason that the banker’s action strikes at the credit worthiness of the drawer of the cheque which remains of great importance. A cheque should be equivalent to cash. Section 5 of the Penal Code treats it as such.

There is nowadays very little difference between the trader and another person. It does not need great circumspection to perceive the insidious danger that loss of credit involves. It is not only the attitude of the payee himself that is involved, it is his method of seeking redress that may widen the area and draw in others. The payee must decide not to receive any more cheques, but what if he broadcasts that fact by a general notice or involves the drawer’s employer? What is the position of the public servant who must avoid debts? It is easy to see that the payment of rent, school fees and professional fees, taxes, as well as grocery bills depend just as much on the credit of the drawer of the cheque as the trader paying for items of commerce.

It may be urged that cheques are nowadays dishonoured in greater numbers than ever, and that therefore no great harm is done, either to the trader or non-trader. It does not relieve the position of the honest trader or nontrader to be lumped together with unscrupulous persons. If anything it makes it worse. The credit aspect of cheques should be preserved.

There can be found no real juridical difference between any class of persons whose cheques are dishonoured. It is therefore time for Lord Tenterden’s words to bear full fruit, even such fruit as he himself failed to grasp. To wrongly dishonour any cheque is to do some injury in fact. If that is right, then it is not necessary to plead and prove damages. But in ordinary circumstances, the damages will be quite modest. They will be more than nominal damages but not so greatly more as to be excessive. The Australian decision that a farmer is not a trader illustrates the obsolescene of the old views. It is when the injury is pleaded and proved that damages of a substantial amount will be awarded, but again they must not be excessive.

It may be that in many cases a proper apology from the bank to the drawer and payee concerned will be acceptable, and all that is needed in minimizing damages Managers of banks have been slow to admit or apologise for bank mistakes. That is out of date, especially in countries like Kenya where banking has had to be fostered at grass-root level, a development possibly hampered by the failures to put right banking errors.

In coming to these conclusions I am aware of the recent decision of the Court of Appeal in England (O’ Connor and Parker LJJ.) in Rae v Yorkshire  Bank PlcTimes Law Report of 12th October, 1987. The Recorder of the Leeds County Court awarded £20 damages against the Bank which had twice dishonoured the plaintiff’s cheques and once refused to cash one, in breach of an agreement to extend the plaintiff’s overdraft facilities. Parker LJ said he thought that £20 might be too high a figure for nominal damages. But as the Bank had not cross-appealed the figure was allowed to remain. It follows that the English Court of Appeal still holds to the idea that nominal damages is sufficient for a non-trader. For my part I agree with the recorder if he intended to extend nominal damages and I entirely dissent from the views of the Court of Appeal. It is extra-ordinary that customer of a Bank should be treated in this high-handed manner. But I especially approve of the jury’s view in Gibbons’ case, where £50:00 had been awarded. Nowadays that sum might be ten times as much or more.

Otherwise as I have said I agree with the conclusions of the Court, and the orders proposed.

Dated and delivered at Nairobi this  19th day of July , 1988.

J.O NYARANGI

…………………

JUDGE OF APPEAL

H.G PLATT

…………………

JUDGE OF APPEAL

J.M GACHUHI

…………………

JUDGE OF APPEAL

I certify that this is a true copy of the original.

DEPUTY REGISTRAR