National Industrial Credit Bank Ltd v Projects and Allied Consultants Ltd [2022] KEHC 9952 (KLR) | Banker Customer Relationship | Esheria

National Industrial Credit Bank Ltd v Projects and Allied Consultants Ltd [2022] KEHC 9952 (KLR)

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National Industrial Credit Bank Ltd v Projects and Allied Consultants Ltd (Civil Appeal 328 of 2019) [2022] KEHC 9952 (KLR) (Civ) (14 July 2022) (Judgment)

Neutral citation: [2022] KEHC 9952 (KLR)

Republic of Kenya

In the High Court at Nairobi (Milimani Law Courts)

Civil

Civil Appeal 328 of 2019

CW Meoli, J

July 14, 2022

Between

National Industrial Credit Bank Ltd

Appellant

and

Projects and Allied Consultants Ltd

Respondent

(Being an appeal from the judgment of Hon. B. J. Ofisi (RM) delivered on 17th May 2019 in Nairobi Milimani CMCC No. 4558 of 2014)

Judgment

1. This appeal emanates from the judgment delivered on 17th May 2019 in Nairobi Milimani CMCC No. 4558 of 2014. The suit was commenced by way of a plaint filed on 7th August 2014 by The Projects & Allied Consultants Ltd, the plaintiff in the lower court (hereafter the Respondent) against National Industrial Credit Bank Limited the defendant in the lower court (hereafter the Appellant). The claim was for general damages, Kshs. 35,000/- plus interest thereon at the rate of 18% per annum from 1st April 2014 and was founded on alleged breach of banker-customer relationship, negligence, misrepresentation, fraud and malice on the part of the Appellant.

2. The Respondent averred that the Appellant without the express instruction, authority and or permission of the Respondent debited the Respondent’s account with a curious entry dubbed “Account Transfer Withholding tax” for Kshs 35,000/- without any reason, explanation and or notice upon the Respondent. It was further averred that as a result of the Appellant’s breach of banker-customer relationship the Respondent suffered embarrassment, stress, and negative financial standing eroding the Respondent’s dependability as a responsible business firm.

3. The Appellant filed statement of defence on 10th September 2014 denying the key averments in the plaint and admitted having debited the Respondent’s account save to state that the amount of Kshs. 35,000/- debited was in line with the general terms and conditions of the hire purchase agreement between the parties. The suit proceeded to full hearing during which both parties adduced evidence. In its judgment, the trial court found in favour of the Respondent and entered judgment in the sum of Kshs. 35,000/- plus costs of the suit and interest .

4. Aggrieved with the outcome, the Appellant filed a memorandum of appeal dated 17th June 2019 challenging the decision of the trial court on the following grounds: -“1. Thatthe learned trial magistrate erred in law and in fact by entering judgment of Kshs. 35,000/- in favour of the plaintiff contrary to the evidence tendered and contrary to express provisions of the hire purchase agreement executed between the Appellant and the Respondent.

2. Thatthe learned trial magistrate erred in law and in fact by misinterpreting and misapplying the provisions of the Hire Purchase Agreement executed between the Appellant and the Respondent which obligated that such costs and expenses be incurred by the Respondent.

3. Thatthe learned trial magistrate erred in law and in fact by reaching an erroneous conclusion that the Appellant ought to pay the Respondent Kshs. 35,000/- contrary to express provisions of the Hire Purchase Agreement executed between the Appellant and the Respondent.

4. Thatthe learned trial magistrate erred in law and in fact by failing to appreciate that the duty to indemnify the Appellant against all charges and costs survives despite the fact that the loan had been fully repaid by the Respondent.

5. Thatthe learned trail magistrate erred in law and in fact by failing to appreciate that the description of the fees charged by the Appellant on the Respondents account was immaterial since evidence on record expressly reflected the debt od Kshs. 35,000/- was paid as legal fees.” (Sic)

5. The appeal was canvassed by way of written submissions. Counsel for the Appellant anchored his submissions on the oft-cited decision of Selle & Another v Associated Motor Boat Co. Ltd & Others [1986] EA 123 on the principles to be observed by an appellate court on a first appeal. The Appellant condensed and argued grounds 1 – 4 of the appeal as a singular issue and ground 5 as a separate issue. Submitting on the former he placed reliance on the decisions in Gatobu Mibuntu Karatho v Christopher Murithi Kubai [2014] eKLR and Pius Kimaiyo Langat v Co-operative Bank of Kenya [2017] eKLR to argue that an express term and condition in the Hire Purchase Agreement (hereafter the Agreement) provided that the Respondent was to indemnify the Appellant for any legal expenses incurred in defending itself concerning the state, condition and use of the hired goods or in any way arising out of the hired goods being let under the hire purchase agreement. It was further asserted that legal proceedings having admittedly arisen out of the use of the hired goods, the Appellant had a right to defend itself in the said proceedings and pursuant to the agreement recover from the Respondent any expenses thereby incurred; that the parties were bound by the executed agreement and the duty of the trial court was to interpret the contract and not to impose terms.

6. Further, counsel submitted that the agreement authorized the Appellant without notice to debit from monies held in the Respondent’s account any sums due to them under the agreement. That the erroneous description of the debited sum of Kshs. 35,000/- as “Account Transfer Withholding tax” was immaterial as the Appellant produced documentary evidence at the trial to explain the purpose and intention of the debit and as such its actions were not actuated by malice. It was further submitted that whereas an explanation was tendered for the debit the Respondent failed to tender any evidence of fraud on the part of the Appellant. The court was urged to allow the appeal as prayed.

7. The Respondent on its part defended the trial court’s findings in its favour. Counsel cited the decision in Pius Kimaiyo Langat v Co-operative Bank Kenya Limited [2017] eKLR to assert the Respondent having paid all monies due under the agreement was released from obligations therein and the contractual relationship between the parties deemed terminated by performance. He cited the English decisions in Lipkins Gorman v Karpnale Ltd [1992] 4 ALL ER 409, JP Morgan Chase Bank v Springwell Navigation Corporation [2008] EWHC 1186 and Titan Steel Wheels Limited v The Royal Bank of Scotland Plc [2010] EWHC 211 to urge that the relationship between a bank and its customers is fiduciary in nature and the Appellant ought to have verified or consulted the Respondent concerning the particulars of the legal proceedings and further given reasons for the deductions.

8. It was asserted that the Appellant’s act of debiting the Respondent’s account without proper notice or authorization was in breach of its fiduciary duty. It was further argued that the explanation given by the Appellant with respect to the debit was inadequate, as it was unclear whether it related to withholding tax or legal costs. He cited Husamuddin Gulan Pothiwilla (Administrator, trustee and executor of the estate of Gulan Hussein Ebrahim Pothiwilla) v Kidogo Basi Housing Corporation Society Limited & 31 Others [2009] eKLR in support of the submission.

9. The court has considered the memorandum of appeal, the record of appeal, the pleadings and original record of the proceedings as well as the submissions by the respective parties. This is a first appeal. The Court of Appeal for East Africa set out the duty of the first appellate court in Selle v Associated Motor Boat Co. [1968] EA 123 in the following terms: -“An appeal from the High Court is by way of re-trial and the Court of Appeal is not bound to follow the trial judge’s finding of fact if it appears either that he failed to take account of circumstances or probabilities, or if the impression of the demeanour of a witness is inconsistent with the evidence generally.An appeal to this court from a trial by the High Court is by way of retrial and the principles upon which this court acts in such an appeal are well settled. Briefly put they are that this court must reconsider the evidence, evaluate it itself and draw its own conclusions though it should always bear in mind that it has neither seen nor heard the witnesses and should make due allowance in this respect.In particular this court is not bound necessarily to follow the trial judge’s findings of fact if it appears either that he has clearly failed on some point to take account of particular circumstances or probabilities materially to estimate the evidence or if the impression based on the demeanor of a witness is inconsistent with the evidence in the case generally.”

10. An appellate court will not ordinarily interfere with a finding of fact made by a trial court unless such finding was based on no evidence, or it is demonstrated that the court below acted on wrong principles in arriving at the finding it did. See Ephantus Mwangi & another v Duncan Mwangi Wambugu [1982 – 1988] IKAR 278.

11. Upon review of the memorandum of appeal and submissions by the respective parties before this court, it is the court’s view the appeal turns on a single issue, namely, whether the trial court misdirected itself in entering judgement in favour of the Respondent. Pertinent to the foregoing are the pleadings, which form the basis of the parties’ respective cases before the trial court. Hence a review thereof is apposite before dealing with evidentiary matters. In Wareham t/a A.F. Wareham & 2 others v Kenya Post Office Savings Bank [2004] 2 KLR 91, the Court of Appeal stated in this regard that: -“We have carefully considered the judgment of the superior court, the grounds of appeal raised against it and the submissions before us on those matters. Having done so we are impelled to state unequivocally that in our adversarial system of litigation, cases are tried and determined on the basis of the pleadings made and the issues of fact or law framed by the parties or Court on the basis of those pleadings pursuant to the provisions of Order XIV of the Civil Procedure Rules. And the burden of proof is on the Plaintiff and the degree thereof is on a balance of probabilities. In discharging that burden, the only evidence to be adduced is evidence of existence or non-existence of the facts in issue or facts relevant to the issue. It follows from those principles that only evidence of facts pleaded is to be admitted and if the evidence does not support the facts pleaded, the party with the burden of proof should fail.” (Emphasis added).

12. The Respondent by its plaint averred at paragraphs 4, 5, 6, 7, 8 & 10 that:“4. On or about the 26th October 2010 the Plaintiff entered into a hire purchase agreement wherein the defendant agreed to offer for bailment and the Plaintiff agreed to take on hire all the motor vehicle registration number KBL 245C Toyota Land Cruiser upon the hirer remitting the agreed hire charges as and when they fell due.5. To facilitate the remittance of the hiring charges, the Plaintiff agreed that its business account could be utilized and authorized the retail division to debt its account with the hiring charges as and when they fell due and remit the same the defendant’s asset finance division.6. The Plaintiff punctiliously paid its hiring charges culmination of which it duly paid the hire purchase price, which was completed on the 22nd November 2013 thereby discharging the hire purchase agreement by performance. In confirmation thereto, the defendant duly released to the plaintiff its logbook previously held by the defendant during the period of hiring as well as a discharge of the plaintiff by the defendant.7. The plaintiff’s business account held with the defendant’s retail banking division was separate and distinct from its hire purchase facility held with the defendant’s asset finance division and each of the accounts were governed by a different set of conditions of user and or issue.8. On or the 1st of April 2014, the defendant without the express instructions authority and or permissions of the plaintiff authorized signatories debited the plaintiff’s account with a curious entry dubbed ‘Account transfer withholding tax’ for Kshs. 35,000/= without any reason, explanation and or notice upon the plaintiff.10. As a result of the defendant’s breach of banker-customer relationship, misrepresentation of material facts, fraud and or malice, the plaintiff has suffered embarrassment, stress, trauma, negative financial standing in the eyes of the plaintiff’s clients and business partner hence eroding the plaintiff’s dependability as responsible business firms standing immense loss. ” (sic)

13. The Appellant filed a statement of defence denying the key averments in the plaint and admitted having debited the Respondent’s by stating at paragraph 4, 6, 7 & 8 that:“4. The Defendant denies the contents of paragraph 7 of the Plaint and puts the Plaintiff to strict proof thereof.5. …………6. In response to paragraph 8 of the plaint the Defendant admits having debited the Plaintiff’s aforementioned account save to state that the amount of Kshs. 35,000/= debited was in line with the general terms and conditions of the agreement between the parties.7. The Defendant shall at the hearing rely on the full import and interpretation of the general terms and conditions as well as the Hire Purchase agreement between the parties herein.8. The Defendant denies the particulars of breach of Banker-Customer relationship, negligence, misrepresentation, fraud and malice as pleaded in paragraph 9 of the plaint and puts the Plaintiff to strict proof thereof………..” (sic)

14. There was no dispute that the parties herein had entered into a hire purchase agreement for the purchase of a vehicle by the Respondent and that the debt was fully paid. It is not in dispute that the said vehicle was subsequently allegedly involved in an accident as a result of which the Appellant and Respondent were sued in Bungoma CMCC 464 of 2013 Richard Bushuru Osundwa (suing as the personal representative of Claire Makokha Osundwa -deceased ) v Peter Amoche , National Industrial Credit Bank Ltd and Projects And Allied Consultants Ltd and that the said defendants had through their respective counsels filed defences before the Appellant was by consent “removed” from the proceedings. Thereafter the Appellant admittedly debited the Respondent’s account for a sum of Shs. 35,000/- described as withholding tax. The trial court after restating and examining the evidence pronounced itself as follows:“After viva voce evidence, parties proceeded to file rival submissions which I have carefully considered together with the cited authorities.…… I have carefully scrutinized the higher purchase contract and bank statements adduced as evidence. It is my considered view that the Plaintiff fulfilled its obligation under the hire purchase contract on 27th November 2013. Subsequently its loan account was closed by the Defendant.The debit entered in the Plaintiff’s account by the Defendant is irregular since the narration is withholding tax and not legal fees. The Plaintiff was also not notified of this entry.I have considered the evidence on record, submission and the law. I find that the Plaintiff was able to prove his claim on a balance of probabilities. I enter judgment in favour of the Plaintiff against the Defendant for Kshs. 35,000/= with interest at court’s rate from the time of filing until payments in full.” (Sic).

15. The applicable law as to the burden of proof is found in Section 107, 108 and 109 of the Evidence Act. The duty of proving the averments contained in the plaint lay squarely on the Respondent. In Karugi & another v Kabiya & 3 others [1987] KLR 347 the Court of Appeal stated that:“[T]he burden on a plaintiff to prove his case remains the same throughout the case even though that burden may become easier to discharge where the matter is not validly defended and that the burden of proof is in no way lessened because the case is heard by way of formal proof. We would therefore venture to suggest that before the trial court can conclude that the plaintiff’s case is not controverted or is proved on a balance of probabilities by reason of the defendants’ failure to call evidence, the court must be satisfied that the plaintiff has adduced some credible and believable evidence, which can stand in the absence of rebuttal evidence by the defendant…--. The plaintiff must adduce evidence which, in the absence of rebuttal evidence by the defendant convinces the court that on a balance of probabilities it proves the claim.” (Emphasis added)

16. The Respondent’s cause of action was founded on breach of banker-customer relationship with reference to the hire purchase agreement dated 26th October 2010, which breach, was vehemently denied by the Appellant. The relationship between the parties commenced with the agreement for hire purchase and the question whether the relationship and obligations terminated upon full payment of installments by the Respondent can only be determined by a look at the terms of the agreement. There are instances where a contract will include a clause to the effect that certain obligations survive the performance or termination of the contract. That said, parties decide on the terms of the contract between them. As stated in National Bank of Kenya Ltd v Pipeplastic Samkolit (K) Ltd & another [2001] eKLR :“A Court of law cannot re-write a contract between the parties. The parties are bound by the terms of their contract unless coercion, fraud or undue influence are pleaded and proved".

17. At the hearing of the suit Joseph Simekha (PW1) testified on behalf of the Respondent to the effect that in 2010 the Respondent entered into a hire purchase agreement under which the Appellant was to the Respondent’s purchase of motor vehicle KBL 245C and that the debt would be amortized by instalments through a loan account. In 2012 the Respondent completed the payment of installments and on 22nd November 2013 the Appellant discharged it. It was his evidence further that after the close of the loan account the Appellant debited its business account with a sum of Kshs. 35,000/- and upon enquiry was advised that the debit related to legal fees in respect of a suit filed in Bungoma Law Courts concerning the hire purchase vehicle. PW1 testified that the Respondent demanded a reversal of the debit, but the Appellant did not comply. He stated that the said actions of the Appellant adversely affected the Respondent’s image to its clients.

18. Huldah Mengele a relationship officer at the Appellant Bank testified as DW1. It was her evidence that the hire purchase motor vehicle was jointly registered in the name of both the Appellant and Respondent. That the suit in Bungoma Law Court concerning the hire purchase motor vehicle was filed a month before the Respondent paid the last installment on the hire purchase agreement; that the Appellant instructed counsel to apply to strike out it’s name from the proceedings in the Bungoma suit and attendant legal fees amounting to Kshs. 35,000/- was debited from the Respondent’s account pursuant to Clause 2(10) and 12 of the hire purchase agreement which provided that the Respondent was liable to indemnify the Appellant for any third-party claims against it and further granted it consent to consolidate the accounts in respect of any outstanding dues. In cross examination she admitted that there was no notification to the Respondent of the debit and that the narration of the debit as ‘withholding tax’ was erroneous but not done in bad faith.

19. The pertinent clause of the hire purchase agreement dated 26th October 2010 produced as (P. Exh.1) reads:“2(k). IndemnityAs an obligation surviving termination of the hiring of Goods and/or Agreement, Indemnity the owner in respect of any claims made against the owner and all damages, costs and expenses (including all legal costs on advocates and client basis) suffered or incurred by the owner as a result of ant third party claim arising out of the state, condition or use of the goods or in any way arising out of the goods being let under this agreement.”

20. On the other hand, clause 12 entitled “Collateral Security” reads:“In addition to any other security which the owner may hold from time to time, he owner is entitled to hold by way of security for the outstanding balance of the hire purchase price specified in the schedule and all other sums due under this agreement all monies deposited by the hirer in accounts with the owner whether now or in future including any amount specifically deposited by the hirer in a cash security account and in the event of the hirer making default in payment of any sum due under this agreement the owner may at any time and without notice to the hirer combine and consolidate all or any of the hirer’s accounts and or set off all monies so held against the amount of the hirer’s indebtness under this agreement. Nothing done by the owner pursuant to this clause shall suspend or prejudice the remedies of the owner under this agreement.” (Sic)

21. Evidently, based on these clauses, the Appellant was entitled to recover any legal fees incurred in defending itself in suits arising from the use of hire purchase motor vehicle while it was jointly registered in the names of the parties in the period of the hire purchase or after the termination of the contract. The clauses survived the termination of the agreement therefore regarding Bungoma CMCC No. 464 of 2013, which claim in any event arose, according to DW1 in the last installment month under the agreement. The Respondent did not dispute the fact that the Appellant had through counsel appeared and filed a defence in the suit filed against the two parties in Bungoma. In view of the indemnity clause, the Appellant could not be expected to shoulder legal fees in the matter when the suit admittedly arose from the Respondent’s use of the hire purchase vehicle.

22. Equally, contrary to the trial court’s finding, there is no requirement in these clauses for advance notice of intended debit in respect of legal or other incidental expenses or dues from any accounts held by the Respondent in the Appellant bank. Regarding clause 12 on consolidation of accounts, the Court of Appeal in Barclays Bank of Kenya Ltd v Kepha Nyabera & 191 others & Another [2013] eKLR held that:“At paragraph 29. 16 of Pagets Law of Banking, 13th Edition, it is stated that the banker may combine two current accounts at any time without notice to the customer even though the accounts are maintained at different branches.We are also guided by the passage in Pagets Law of Banking, supra, paragraph 29. 13 where it is stated thus:''"Right of bankers of set-off which is right of combination or of consolidation of accounts is but the manifestation of a right analogous to the exercise of the banker’s right of lien, a right which is of general application and not in principle limited to account or other similar accounts.?……Thus, in circumstances where a bank has a loan account and also a current account in credit with the same customer and holds security for the ultimate balance, the banker is at liberty to combine and consolidate the accounts and set off the accounts. In the instant case, it is very clear that the 2nd respondent had given the right to the appellant to consolidate and set off any sum standing to the credit of any one or more of those accounts in or towards the satisfaction of any liabilities due to it”.

23. To my mind therefore the only question to be considered is whether the misdescription of the debit as “withholding tax” amounted to breach of the bank’s fiduciary duty, negligence, misrepresentation, fraud and or malice on its part.

24. At the trial, the Appellant produced a letter (D. Exh.6) dated 27th May 2014 by which they responded and offered an explanation to the Respondent’s complaints in P.Exh.6 (being letter dated 15th May 2014 ) and P.Exh.7 (being letter dated 20th May 2014) regarding the debit of the Respondent’s account. The Appellant’s response stated in part that:“a)The bank was served with summons to enter appearance on 12th November 2013 together with pleadings in the reference suit in which NIC Bank Ltd (“the bank”) was sued in court alongside your client in an accident claim involving motor vehicle KBL 245C. The facts are well within your clients’ knowledge as they were parties to the said suit”b)…..c)Despite the said joint registration the banks rights and liabilities were limited to those of a financier thus the Bank was not vicariously liable for any tortious act or omission thereof of your client or its agents.d)Therefore we instructed our advocates to enter appearance in the suit with a view of having the bank’s name expunged from the proceedings. Our advocates represented us in the court and succeed to have the name of the Bank expunged from the proceedings.e)…….f)That the term “Account Transfer” refer to transfer of money from one account to another account. In this case the bank credited the amount to the Advocates Law Firm account held at NIC Bank Ltd and also deducted “withholding Tax” on the amount paid pursuant to law.” (sic)

25. The Appellant had upon inquiry explained the narration of the debit in the Respondent’s Business Account No. [1xxxx5] and hence discharged its fiduciary duty to the Respondent. It is the court’s opinion that although the narration term “Withholding tax” was erroneous, this reference was immaterial, and the explanation offered at the trial by the Appellant was not displaced or controverted by the Respondent. Lastly Clause 2(k) of the hire purchase agreement is self-explanatory. Thus, no malice, fraud, misrepresentation, or negligence can be read into the Appellant’s actions. There is merit in the Appellant’s complaint that the trial court misdirected itself by failing to consider the Appellant’s evidence as a whole and confining itself merely to the erroneous description of the debit by the Appellant bank.

26. The evidence led by the Respondent failed to rise to the standard of balance of probabilities regarding alleged breach of the bank’s fiduciary duty, negligence, misrepresentation, fraud and or malice on the part of the Appellant. The trial court having misdirected itself by attaching undue weight to the error in the debit narration, ignoring the Appellant’s explanation thereon and imposing on the Appellant a non-existent requirement for notice of offsets to the Respondent, arrived at an erroneous finding on liability against the Appellant. The finding cannot stand. The appeal is merited and is hereby allowed and consequently, the judgment of the lower court is hereby set aside. The court substitutes therefor an order dismissing with costs the Respondent’s suit in the lower court. The costs of the appeal are awarded to the Appellant.

DELIVERED AND SIGNED ELECTRONICALLY AT NAIROBI ON THIS 14TH DAY OF JULY 2022C.MEOLIJUDGEIn the presence of:For the Appellant: Mr. SongoleFor the Respondent: Mr. RabalaC/A: Carol