Mitch Benjamin Kilonzi t/a Intellicom East Africa v Eco Bank Limited [2017] KEHC 80 (KLR)

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA

AT NAIROBI

COMMERICIAL AND ADMIRALTY DIVISION

CIVIL CASE NO. 387 OF 2011

MITCH BENJAMIN KILONZI T/A

INTELLICOM EAST AFRICA..................PLAINTIFF

VERSUS

ECO BANK LIMITED..............................DEFENDANT

JUDGEMENT

1.  The Dispute herein revolves around two payments made out of the Account of Mitchell Banjamin Kilonzi t/a Intellicom East Africa (herein the Plaintiff or Intellicom) domiciled at Ecobank Kenya Limited (The Defendant or Ecobank).

2.  The facts are substantially agreed.  At all material times to this suit Intellicom was an Account holder with Ecobank at its Towers Branch.  The Account was 01-10000608. It is common ground that Intellicom would issue instructions to Ecobank through electronic mail to transfer money by Telegraphic Transfer from its current account.

3.  It is the case for Intellicom that it informed Ecobank that all instructions would be made through its official address mkilonzi@intellicom.co.ke. Ecobank disagrees and states that Intellicom had at least three (3) known email address being:-

intellicomea@ AIM.com

Mkilonzo@intellicom.co.ke

Mitch.kilonzo@live.com

4.  The matters that brought grief to Intellicom and triggered this dispute arise from instructions received by Ecobank through email mitch.kilonzi@live.com. On 23rdMarch 2011 an email was sent from that Account to the Bank in which the Plaintiff is purported to have asked for the balance in its Account No. 01-10000608.  That information was provided vide an email of the same day made out at 12. 41 hours.

5.  Again through the same email address, two requests for RTGS Transfers were made to the Bank purportedly by the Plaintiff. In a scanned copy of a letter dated 24th March, 2011 on the letterhead of Intellicom a request was made for the Transfer of Kshs.2,850,000/= to Sovereign Oil ltd.  The second request was for transfer GBP 23,836 to African Nations Cup UK.  The first instructions were recalled but the payment of GBP 23,836 was made.

6.  Intellicom denies ever giving these instructions and blames Ecobank for  effecting instructions issued from the email mitch.kilonzi@live.com which was unknown to the Defendant and not its official email address and in paragraph 23 of the Plaint dated 7th September 2011 Intellicom sets out the particulars of Breach of Duty of care and skill it perceives as follows:-

23. 1   Failing to exercise due care and skill in dealing with the Plaintiff’s account as required by law.

23. 2 Failing to verify the authenticity of the email address of mitch.kilonzo@live.com and the instructions issued therefrom.

23. 3.    Debiting the Plaintiff’s account with a sum of Kenya Shillings Two Million Eight Hundred and Fifty Thousand (Kshs.2,850,000/=) and transferring the same to Sovereign oil Limited, Standard Chartered Bank, Account No.0102010561400 at the Yaya Centre Branch without proper and authentic instructions from the Plaintiff.

23. 4 Debiting the Plaintiff’s account with a sum of GBP 23,836 equivalent to a sum of Kenya shillings Three Million Two Hundred and Fifty Three Thousand Six Hundred and Fourteen (Kshs.3,253,614/-) and transferring the same to African Nations Cup UK, Santander Bank, 41A Wood Grange Road, London E7 8BG, Account No.77638557 without proper authentic instructions from the Plaintiff.

23. 5 Accepting and effecting instructions issued from an unauthorized email address.

23. 6 Failing to inform the Plaintiff of the fraudulent transactions in its account.

23. 7 Creating an overdraft facility in its account without express instructions from the Plaintiff.

23. 8 Failing to reverse the transfer of GBP 23,836 made to African Nations Cup, UK and crediting its account with the same.

7.  In addition to the loss of GBP 23,836, Intellicom avers that as a consequence of that payment its Account was overdrawn and it was therefore unable to make payment of Kshs.200,000/= to one Jacqueline Wangui Muiruri and GBP 23,836 to Infor Global(Midlands 11).  This, the Plaintiff alleges has caused it financial embarrassment and loss of business.

8.  Intellicom’s prayer is for judgement against Ecobank in the following terms:-

a) A sum of Kenya Shillings Three Million Two Hundred and Fifty Three Thousand Six Hundred and Fourteen (Kshs.3,253,614/-).

b) General damages for financial embarrassment.

c)  Special damages for loss of business with Infor Gobal Solutions (Midland 11) Limited.

d) Interests on (a), (b) and (c) at commercial rates from date of fraudulent transfer.

e) Any other relief this Court may deem fit in the circumstances.

9.  The Banks defence is that the email (ie. mitch.kilonzi@live.com) from which the troubled instructions emanated belongs to Intellicom and it has no doubt that it is the Plaintiff who gave the instructions. In the alternative it is averred that if Intellicom’s email was hacked then it is Intellicom who bore the responsibility of maintaining and securing the privacy of the email accounts and not it.  Ecobank sets out the following particulars:-

a) The Defendant had no way and could not reasonably be expected to secure the Plaintiff’s email communication from source.

b) All such email communication was attaching the typed and signed instructions from the Plaintiff to the Defendant and at no time was there a departure from this mode of communication.

c)  At all times and before disbursements, the Defendant’s officers endeavored to undertake  telephone communication with the Plaintiff except in cases where the Plaintiff had made such contact with the Defendant’s officers during normal follow up of urgent instructions to the Defendant.

d) The Defendant reasonably, honestly and innocently believed that the Plaintiff had secured his email communications hence the Defendant could not decline genuine or apparently genuine transactions from the Plaintiff’s correct email addresses.

e) Since the Plaintiff maintained easy access to his account online, the Defendant reasonably expected that the Plaintiff would monitor his account and detect any instructions undertaken irregularly in his account.

f)  Except from the Plaintiff’s emails, the Defendant’s staff never copied any emails addressed to the Plaintiff to any third parties.

g) The emails emanating from the aforementioned 2 addresses of the Plaintiff were merely used by the Plaintiff to forward actual typed, signed letters of instructions borne on the Plaintiff’s letterhead and which letters were scanned and forwarded to the Defendant which upon verification of the signatures and other necessary due diligence, acted upon the scanned instructions.

h) In the event of the matters stated in paragraph 18(g) above, the Defendant reasonably expected that the Plaintiff letter headed letters and signed corresponded correctly emanated from the Plaintiff and that they were sent in the ordinary course of business and had not proper basis or ground to question the contents or reasons thereof.

i)  The Defendant could not be blamed for any lapses or flaws or temporary failures of the Plaintiff’s computer systems, security, privacy of any fraudulent attacks on the Plaintiff’s operational systems and computer software or email or internet system.

j)  The Defendant could not be blamed for any fault or loopholes in the Plaintiff’s computer system or services as provided by the Plaintiff’s Internet Service Provider (ISP).

10.  Mitchell Benjamin Kilonzi gave evidence on his own behalf while Christion Wahu Wanyoike and Peninah Njenga testified on behalf of the Bank. The salient issues in their evidence are discussed in detail in the Courts rendition.  The parties herein each gave a proposal as to the issues for determination. Although differently worked, they both capture the essence of the dispute herein. The following are what the Court must determine:-

a) Whether the Instructions acted upon and the payments made by Ecobank were in accordance with Intellicom’s Account operation mandate.

b) Whether Ecobank breached its Duty of care when it made out the payment to Sovereign Oil Limited and African Nations Cup UK.

c)  Whether the overdraft was incurred irregularly.

d) What loss if any did the Plaintiff suffer?

e) Is the Plaintiff entitled to the reliefs sought?

11.  At the time of opening Account No.01-10000608, the Plaintiff signed an Account opening form (D exhibit 1). In one part of the form Intellicom was required to give its details which included its email address. It gave the address intellicomea@AIM.com. This email address was also the address given as to where Bank statements were to be emailed.

12.  In his evidence in chief, Mr. Kilonzi told Court that the agreed form of communication between Intellicom and Ecobank was via email address mkilonzi@intellicom.co.ke.  But there was no evidence as whether this agreement or arrangement was reduced into writing.  What is apparent however is that several instructions issued by Intellicom through this email had been honoured by the Bank.

13.   These instructions would be for Telegraphic transfer of money to third party Accounts.  The witness produced several emails in this respect.  See emails of 3rd January 2011(P exhibit page 26A), 3rd January 2011 (p exhibit page 28) 3rd January 20111 (P exhibit page 29), 4th January 2011 (P exhibit page 33), 6th January 2011)P exhibit 36) and 16th March 2011(P exhibit 40).  A common thread that runs through these instructions is that the emails forwarded scanned copies of the request for Telegraphic Transfer which was on the letterhead ‘Intellicom’ and signed by “Mitchel Kilonzi” who had the mandate to operate the Account.

14.  PW1 told Court that Intellicom had never used the address mitch.kilonzi@live.com to communicate or instruct the Bank.  The Bank thought otherwise but were unable to provide any such email from the said address other than the controversial instructions that are the subject of this dispute.

15.  It would seem and I also hold that the arrangement that existed, and accepted by both sides is that the Plaintiff would, via email, forward to the Bank scanned copies of instructions to make telegraphic transfers. There is further evidence that email used was mkilonzi@intellicom.co.ke.

16.   Preceding the transfer that the Intellicom seeks to impugn, Mr. Kilonzi called Peninah Njenga (DW2) and told her that he wanted to transfer some money in sterling pounds (about 23,000) and asked for a favourable exchange rate.  He also asked whether the intended recipient could receive the money on the same day.  But because of some backoffice operations which included the making of some due diligence, DW2 told Kilonzo that the transfer could not be effected immediately. At any rate DW2 who was a forex dealer was not responsible for the money transfer.  However, she gave Kilonzi the Exchange rate to be applied in the transaction.

17.  Christian Wahu Wanyoike (DW1) was on March 2011 working at the Operations Department of Ecobank at its Towers Branch. This is where Intellicom’s Account was domiciled.  She was, inter alia, in charge of Telegraphic Transfers and foreign currency Real Time Gross Settlement (RTGS).

18.  On 22nd March 2011, her colleague Elsie Gichuru forwarded an email supposedly from DW1 on email address seeking balances of his Account.  The email used was mitch.kilonzi@live.com(P exhibit page 21).  She responded to the same address giving the available balance as Kshs.3,963,294. 01 an a proposed exchange rate of 141. 63 (D exhibit page 22).

19. Later on 23rd March 2011 she was to receive another email from that same address (mitch.kilonzi@live.com).  Attached to it was a request for an RTGS for Kshs.2. 85 million.  On 25th March 2011, again through the same address was a complaint that the beneficiary had not received the money. On same day her colleague (DW2) forwarded an email for Telegraphic Transfer to Infor Global (P exhibit page 26).  The email used was mkilonzi@intellicom.co.ke (D exhibit page 26).

20.  On 29th March 2011 at 10. 27 an email was sent to DW1 from address mitch.kilonzi@live.com (D exhibit page 28) as follows:-

“Good morning, am just requesting if there is any other way I can make another RTGS of Khs.2,850000/- to the correct account I have, or must wait for the recall from Standard Chartered Bank”.

To this DW1 responded at 10. 31,

Dear mike,

“If your own Account is in order you can make another RTGS as we await for the recall”.

This is evidence that a recall was done and funds received back into the Account of Intellicom.

21.  In the meantime on 30th March, 2011, PW1 called to inquire about the   telegraphic transfer to Infor Global which he had made via email mkilonzi@intellicom.co.ke (D exhibit page 26). On 31st March 2011 Kilonzi using mkilonzi@intellicom.co.ke issued RTGS instructions for 200,000/.  In here written statement, adopted as her evidence in chief, DW1 says that on 1st April 2011 she asked Kilonzi to call her urgently (D. exhibit page 35). This was to email address mitch.kilonzi@live.com. She received a reply 21 minutes later through mitch.kilonzi@live.com stating,

“Dear Christine,

I travelled yesterday to United Kingdom, Am in a hotel, you can get me by email”.

She then said that it was at this point that she realized she was getting emails from 2 addresses mitch.kilonzi@live.com and mitch.mkilonzi@intellicom.co.ke.

22.     Of course, the Plaintiff denies ever using the address mitch.kilonzi@live.com to issue the troubled transfers.  Who would be to blame for this state of affairs?

23. The Bank’s position is that both emails mkilonzi@intellicom.co.ke and mitch.kilonzi@live.com belonged to the Plaintiff and the Defendants were therefore acting within the Account operation mandate when it relied on correspondence transmitted through these emails.  The Bank points out that the instructions were those in the Letter head forwarded by the emails and duly signed by the Plaintiff and which signature was verified as the known and accepted signature of the Plaintiff. It was also submitted by the Bank that no document Examiner was called as a witness to prove that the Documents consisting the instructions were a forgery or irregular.

24. Let me first start with this latter submission.  The Plaintiff’s Bundle of Documents filed on 8th September 2011 was received in evidence as exhibits. Part of the Exhibits is a letter of 29th August 2011 (D.  exhibit pages 100 to 102)  from Mr. Gabriel Mbuvi an officer in charge of the Banking fraud Investigation of Central Bank Ltd.  In that letter the Officer informed the Plaintiff that it had subjected the two impugned RTGS instruction to document examination and advised as follows-

“The two RTGS instructing letters (questioned documents) which contained the suspected forged signatories and the specimen signatures of the Complainant were submitted to the Document Examiner for analysis.  The same were analyzed and report that the signatures were not made by the same author”.

No evidence to counter this finding was produced by the Bank and this Court must find that, on a balance of probabilities the two letters were not signed by Mitch Kilonzo who had the mandate to operate Account No.01-1000608.

25.   Now, both Counsel for the Plaintiff and the Defendant submitted on the scope of the duty of a paying bank to its customer. Both asked this Court to accept the scope as set out in the decision of Hon. Meoli J. in Shalimar Flowers Self Help Group vs. Kenya Commercial Bank[2016]eKLR. In that decision, her Ladyship accepted as corrected the following passage from Karat Rubber co. Ltd vs. Burden & others (No.2 [1972]:-

“…a bank has a duty under its contract with its customer to exercise “reasonable care and skill” in carrying out its part with regard to operations within its contract with its customer. The standard of that reasonable care and skill is an objective standard applicable to bankers.  Whether or not it has been attained in any particular case has to be decided in the light of all the relevant facts, which can very almost infinitely.  The relevant considerations include the prima facie assumption that men are honest, the practice of bankers, the very limited time in which  banks have  to decide what course to take with regard to a cheque presented for payment without risking liability for delay, and the extent to which an operation is unusual or out of the ordinary course of business.  An operation which is reasonably consonant with the normal conduct of business (such as payment by a stock broker into his account of proceeds of sale of his client’s shares) of necessity does not suggest that is out of the ordinary course of business.  If “reasonable care and skill” is brought to the consideration of such an operation, it clearly does not call for any intervention by the bank.  What intervention is appropriate in the exercise of reasonable care and skill again depends on circumstances.

As between the company and the bank, the mandate, in my view, operates within the normal contractual relationships of customer and banker and does not exclude them. These relationships include the normal obligation of using reasonable skill and care; and that duty, on the part of the bank, of using reasonable skill and care, is a duty owed to the other party to the contract, the customer, who in this case is the Plaintiff company, and no to the authorized signatories. Moreover, it extends over the whole range of banking business within the contract. So the duty of skill and care applied to interpreting, ascertaining, and acting in accordance with the instructions of a customer; and that must mean his really intended instructions as contrasted with the instructions to act on signatures misused to defeat the customer’s real intentions. Of course, omnia praesumuntur rite esseacta, and a bank should normally act in accordance with the mandate – but not if reasonable skill and care indicate a different course”.

26.  The duty of the Bank is to act as per the Customers mandate and in doing so to exercise reasonable care and skill. What is reasonable care and skill is to be decided in the light of the different facts of each case.

27.   It is accepted that in respect to Instructions to transfer money by way of Telegraphic Transfer and RTGS, the agreed mode, by conduct of the parties, was that the Plaintiff would send an email forwarding the instruction’s letter.  The instruction’ letter would be on the letterhead of Intellicom and signed by the mandated signatory ie. Mr. Mitch Kilonzi.

28.  It would seem that the email address used by the Plaintiff was mkilonzi@intellicom.co.ke.  See the many emails this Court has set out in paragraph 13 of this decision.  The evidence on record is that the very first time that the email mitch.kilonzo@live.com was used was when it forwarded the two instructions which have turned to be forged.  Those instructions, unfortunately, were effected and a loss has occurred to the Plaintiff.  There is a blame game as to who should bear the loss.

29.  The Plaintiff blames the Bank for acting on instructions which emanated from an email that it had never used.  On the other hand the Bank asks that the customer bears responsibility as it was responsible for the security of his email. In pressing this argument the Bank submits that the Plaintiff admitted that he was aware of the risks in operating his account through email.

30.  This is the view of the Court.  The evidence of DW1 was that she asked Mitch to call here urgently when she realized that the Bank was receiving mail from the Plaintiff from two different addresses.  Here are her words:-

“This is when I noticed a discrepancy on the email address used and so I asked Mitch to call me urgently”.

31.  Just like the Plaintiff, the Bank had accepted to use a mode of accepting instructions that would have inherent risks such as the risk of hacking. If the Plaintiff had always used the email address mkilonzi@intellicom.co.ke to forward instructions then as a basic duty of care and skill it would be expected that on receipt of any instructions the Bank officials would, as a prefatory, check to confirm that the instructions would be via that email address. Had the Bank officials made this simple confirmation then it would have noticed that the email address which has caused all this trouble was a different email address and this would arouse a suspicious and raise a red flag.  The Bank would then have been expected to make further inquiries as to the authencity of the instructions by getting in touch personally with the Plaintiff.

32.  The admission by the Bank’s officials that it noticed a discrepancy in the email used after the payment had been made is an admission that had she been more diligent and careful then she would have noticed this immediately she received the emails. To that extent, I find that the Bank failed in its duty of care.

33.  I must say that I may possibly have not reached the same result if the forged letters had been sent via the email address (mkilonzi@intellicom.co.ke) which the Plaintiff had always used and if it had been demonstrated by the Bank that, notwithstanding, reasonable care and skill it would not have ascertained that the signatures on instructions were forgeries.

34.   Because of that failure by the Bank an amount equivalent to Kshs. 3,253,614/= was paid out by the Bank from the Account of the Plaintiff.   The Plaintiff lost that amount.  It would be entitled to a refund thereof from the Bank.

35.  The Plaintiff has also sought General Damages for financial embarrassment and Special Damages for loss of business with Infor Global Solutions (Midlands 11)Limited.   In respect to the former, the Plaintiff did not put forward sufficient material for this Court to work on.  Little wonder the Plaintiff did not even propose a figure.

36.  In respect to the Special Damages for loss of business with Infor Global Solutions (Midlands 11) Limited, in making this plea, the Plaintiff relies on the following holding by Hon. Odunga J, in Gideon Mutiso vs. Mega Wealth International Limited[2012] eKLR:-

“That notwithstanding the general law of contract is that where two parties have made a contract which one of them has broken the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonable be considered either arising naturally ie. according to the usual course of things from such a breach of contract itself, or such as may be reasonably supposed to have been in contemplation of both parties at the time  they made the contract, as the probable result of the breach of it.  The plaintiff is to be paid compensation in money for the loss of that which he would have received had the contract had been performed and no more.  Loss has been defined to mean loss of a pecuniary kind, loss of property or of the use of property or the means of acquiring property, but it does not include damages for the disappointment of mind or vexation caused by hurtful or humiliating manner in which the defendant broke the contract.  It may however exceptionally include compensation for physical discomfort or inconvenience or loss of time. Otherwise the damages which are recoverable in an action for breach of contract are either nominal damages, that consequent to the breach; or substantial damages, that is to say, where a party has not only proved a breach of contract but has also proved that he sustained some actual loss as a result of the breach”.

It is said by the Plaintiff that it has suffered substantial loss as the Defendant failed to carry out his instructions to pay Infor Global Solutions (Midlands 11) Limited.  But there was no evidence setting out or substantiating this alleged “substantial” loss.  On my part I am unable to find substantial loss and will not make this award.

37.  This Court was asked to also enter judgment for interest at commercial rates from the date of fraudulent transfer.   Again there is no evidence as to what rates these are.  The rates are neither pleaded nor proved.  This Court again will not make the award.

38.  The Court enters judgment against the Defendant in the sum of Kshs. 3,253,614/= plus interest thereon at Court rates from the date of filing of this suit.   The Plaintiff shall also have costs.

Dated, Signed and Delivered in Court at Nairobi this 3rd day of November, 2017.

F. TUIYOTT

JUDGE

PRESENT;

Kimani for Mwangi for Defendant

Onsongo for Kilonzo for Plaintiff

Alex - Court Clerk