REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA

AT ELDORET

CIVIL APPEAL NO. 49 OF 2019

CO-OPERATIVE BANK LTD.....................................................................APPELLANT

VERSUS

TARAMUSI FRANCIS ONGOKI...............................................................RESPONDENT

(An appeal from the Judgment of Hon. Moseti, Resident Magistrate,

Eldoret in CM CC No.364 of 2017 delivered on 15/3/2019)

JUDGMENT

Introduction & Background

1. By a plaint dated the 10^th of April 2017, the respondent herein sued the appellant for Kshs 2,099,500/= together with interest at commercial rates from 22^nd September 2016, general damages for breach of duty of care, special damages of Kshs 142,000 and any other relief that the Court deemed fit to grant.

2. The plaintiff/respondent’s case as can be gleaned from the oral evidence he gave in court alongside his adopted witness statement filed in court on the 11^th of April 2017 is that he is a retired civil servant and used to operate an account no. 011000012641200 with the appellant bank.  His case was that on or about the 22^nd day of September 2016, he proceeded to the appellant bank where an officer of the said bank namely Dennis Rop, approached him and called him to his desk situate within the banking hall and explained to him how to invest in Treasury Bills (T-Bills) with returns of about 15% quarterly.

3. The respondent averred that he became interested and the said Dennis Rop gave him T-Bill instruction forms which the respondent filled to invest Kshs 1,000,000. The respondent further averred that the forms were also signed by the said Dennis Rop. In light of this, the respondent averred that his bank account was debited with Kshs 900,000/= and Kshs 99,500 towards the purchase of the said T-Bills.

4. The respondent further testified that on the 9^th of November 2016, he visited the Eldoret Branch of the appellant and signed further T-Bills instruction forms to commit a further Kshs 1,000,000/= towards the purchase of T-Bills. Once again, he met one Dennis Rop who signed on behalf of the bank. The respondent testified that the second Kshs 1,000,000/= he paid on the 9^th of November 2016 was in a fixed deposit account that was earning 7% per annum. He further testified that on the 10^th of December 2016, the appellant debited the respondent’s account with Kshs 500,000 which prompted the respondent to proceed to the appellant bank at Eldoret in order to understand why the same was not Kshs 1,000,000/= as per his instructions.

5. In this regard, the respondent testified that he met one Mr. Chepsoi who was the sole defence witness at trial, who gave him a withdrawal slip for a further Kshs 500,000 which brought the total to Kshs 1,000,000/=. The respondent further testified that a further amount of Kshs 127,000/= was deposited in his bank account where upon inquiry he was informed that the same was interest earned from the T-Bills investment. He further testified that on the 13^th of January 2017, he was called by Dennis Rop to withdraw Kshs 100,000 towards the administration of the T-Bills which he averred he did.

6. Finally, the respondent testified that at the lapse of the three months, no interest was credited into his account as promised by the appellant and upon inquiry, he discovered that the appellant had been involved in what he referred to as an ‘elaborate web of fraud’ where he claimed to have lost Kshs 2,099,500/=.

7. The respondent also called one Martin Esakina Papa, a forensic document examiner who testified that he received documents from the respondent’s advocate to examine signatures hand writing type script and stamp impressions. He thus testified that he was supplied with 3 questions documents namely transaction receipts from cooperative bank ltd, sample signatures and sample handwriting. He testified that he compared the signatures of the respondent and those in the withdrawal slips and concluded that the signatures on the transaction slips were forgeries. He produced his examination report marked PEXH 8.

8. The appellant (defendant) on their part filed a memorandum of appearance dated the 27^th of April 2017 followed by its defence dated the 16^th of May 2017. In this regard, the appellant relied on the testimony of one Justus Kemoi Chepsoi (DW 1) and his adopted statement dated 30^th November 2017. Mr Chepsoi was an employee of the appellant bank.

9. Mr. Chepsoi testified that it was the respondent who authorized the transactions on withdrawals and that at no particular time did the bank or its agents and or assigns sign the transaction forms on behalf of the respondent. Mr. Chepsoi further testified that there was an agency agreement between Kingdom Secuirties Limited and Dennis Kipchumba Rop and as such, the said Dennis Rop was not an employee of the appellant bank. He claimed that Mr. Rop was a commission agent for Kingdom Securities’. Furthermore, the witness confirmed on testimony that Mr. Rop signed the T-Bills instruction form.

10. On cross-examination, DW1 testified that Kingdom securities is a subsidiary of the appellant bank and that the transactions made by the respondent and Dennis Rop were done within the banking hall. He also testified that the bank had not put a notice anywhere in the bank to warn people from transacting with Dennis Rop. He also confirmed that the documents that were produced belonged to the bank. He further testified that Dennis Rop was in charge of filing T-Bills.

11. On cross-examination, Mr. Chepsoi testified that he learnt that Mr. Dennis Rop used to re-sign withdrawal forms and confirmed that one dated the 22^nd of September 2016 had been resigned. Finally, he testified that he did not know where Rop is nor who deposited Kshs 127,000 into the respondent’s account.

12. After hearing the evidence, the trial magistrate in his Judgement delivered on the 15^th of March 2019 ruled in favour of the respondent herein against the appellant as follows:

a. The appellant to pay the respondent Kshs 2,099,500 together with interest at the current commercial rates from 22^nd September 2016 within 30 days from date of the Judgement.

b. The appellant shall pay the respondent Kshs 200,000 being general damages for breach of trust.

c. Costs and interests of the suit in favour of the respondent.

13. Being aggrieved with the above decision, the appellant lodged the instant appeal vide a memorandum of appeal dated 11^th of April 2019 on 10 grounds.

14. When the matter came up on the 27^th of July 2021 for directions, the court directed that the appeal be canvassed by way of written submissions which were duly filed.

Determination

15. This is a first appeal. That being the case, this court is mandated to re-evaluate and re-analyze the evidence tendered before the trial court and come to its own conclusion. See Selle & another vs Associated Motor Boats Co. Ltd.  In addition, considering that this court is the first appellate court, I am alive to the principle that a court will not normally interfere with a finding of fact of the trial court unless the same is based on a misapprehension of the evidence or that the trial court is shown to have acted on wrong principles in reaching the findings. See Jabane vs Olenja [1986] KLR.

16. Having considered the submissions, the record, the grounds of appeal and the applicable law, it is my finding that this appeal turns on whether the appellant bank was negligent in the dealings between Mr. Rop and the respondent. Did it breach its duty of care?

17. From the evidence analysed above, it remains uncontested that the respondent held an account with the appellant bank being account number 01100126441200, Eldoret Branch. This was confirmed by the respondent’s bank statement dated 20^th January 2017 and marked PEXB No.7. Secondly, it is uncontested that the respondent met one Mr. Dennis Rop on the 22^nd of September 2016 for the first time at the appellant’s bank Eldoret Branch. This was confirmed by the respondent PW1 and also DW 1 who testified that indeed Mr. Rop was operating within the banking hall of the appellant.

18. Third, it is uncontested that the T-Bills instruction forms and transaction receipts belonged to the appellant bank. This is clear from the transaction receipts themselves marked inter-alia PEXB No 3, PEXB No.4 which bear the logo of the appellant bank and T- Bills instruction forms marked PEXB No. 1 and PEXB No. 2. This was further confirmed by one Mr. Chepsoi, DW1, an employee of the appellant bank at trial. Fourth, it remains uncontested that one Mr. Rop worked/operated inside the appellant’s banking hall and there was no signage anywhere to indicate that he was not an employee of the bank or that customers should not interact with him.

19. Fifth, it is uncontested that the respondent invested in T-Bills on the 22^nd of September 2016 and on the 9^th of November 2016. This is clear from the bank statement that corroborates the account of the respondent that he paid Kshs 1,000,000 on 22^nd September 2016 and further on the 10^th of December 2016 and 13^th December 2016.

20. Sixth, it is also uncontested that on the 9^th of January 2017, the respondent received Kshs 127,500 from the appellant bank and withdrew Kshs 100,000 on the 13^th of January 2017. This corroborates what the respondent stated that he was called by Mr. Dennis Rop to withdraw the Kshs 100,000 as admission fee for the T-Bills.

21. Lastly, it is uncontested that the respondent was never paid his interest on the T-Bills he had invested in.

22. What is contested is whether the said Mr. Dennis Rop was an employee of the appellant and if not, whether the bank was negligent in the dealing between the said Rop and the respondent.

23. The appellant argued on trial through its witness DW1, that Mr. Rop was not an employee of the bank but a commission agent of Kingdom Securities Ltd, a subsidiary of the appellant as confirmed by DW1 himself. On the other hand, the respondent argued that at all material times, Mr. Rop carried himself out as an employee of the bank since he operated in the bank, the forms were signed by him on behalf of the appellant bank and that the forms themselves belonged to the appellant bank.

24. The trial court after considering the above evidence found that the respondent had proved on a balance of probabilities, that Dennis Rop was an employee of the appellant. In particular, the court took note of the fact that the respondent interacted on numerous occasions with Dennis Rop and also with the manger DW1. The learned magistrate also took note of the fact that although DW1 claimed Dennis Rop was not their employee but an employee of Kingdom Securities, he did not produce any documents to confirm the same. The trial court also noted that Mr. Rop was working in the appellant bank and that DW1 had confirmed that Mr. Rop took to him a withdrawal form from the respondent.

25. This court dares to ask, how could DW1, an employee/branch manager of the appellant interact with a person he claims was not their staff? Secondly, how can it be that he accepted the withdrawal form that was given to him by Mr. Rop if indeed Mr. Rop was not an employee of the bank? Third, how could a non-employee of the bank operate within the bank precincts with such power and authority? How could a non-staff member be authorized to sign T-Bills instruction forms bearing the logo of the appellant on behalf of the appellant bank? How could such a non-staff member be allowed in charge of T-Bills as was confirmed by DW1 himself? 

26. From my position, it is clear that the said Mr. Dennis Rop was placed in a trustworthy position by the appellant. This, as I have highlighted above, was confirmed by DW1, a branch manager of the appellant who testified that Mr.Rop was in charge of T-Bills at the appellant’s banking hall, Eldoret Branch. In this regard, the respondent as a customer had no reason to doubt the integrity of such a highly placed officer of the appellant. After all, Mr. Rop signed the instructions forms on behalf of the bank, worked in the banking hall of the appellant and was well known to the Branch Manager that is DW 1. In my considered view therefore, the respondent dealt very professionally with Mr. Rop during the ordinary cause of his duties as an officer of the appellant.  The respondent also kept clear records of instructions given to him by Mr. Rop and which he furnished this court with.  I am therefore satisfied that the respondent was not guilty of any negligence or undoing on his part.

27. The same cannot however be said for the appellant. Quite the contrary, it is the appellant who failed in its duty of care to the respondent by entrusting the respondent’s account to an officer who was not trustworthy and by failing to put in place appropriate checks and balances or supervisory mechanisms.

28. In this regard, I am guided by the authority in Fazila Sharriff Tejpar vs Fidelity Commercial Bank Ltd. [2008] eKLR as cited by the Court of Appeal in African Corporation Bank Limited vs Zulfiquar Ali Jaffery [2016] eKLR, where the Court observed:

“The respondent cannot be blamed for negligence if the bank retained as its employee a person who had questionable integrity and who was less than honest. It was not anticipated that the respondent would be dealing with a potential fraudster. We therefore find that there was no contributory negligence on the part of the respondent.”

29. I associate myself with the above sentiments. The respondent herein did not anticipate that he would be dealing with an employee of the appellant who had questionable integrity. On the contrary, it is my view that the respondent, in opening his accounts with the appellant, anticipated a system which was not open to abuse by its employees. Furthermore, he must have anticipated a system that is responsive to his complaints and one that would assist him to resolve his complaints that were directly brought about by the bank itself. See African Corporation Bank Limited v Zulfiquar Ali Jaffery [supra].

30.  It is therefore clear from the evidence that the appellant owed the respondent a duty of care, and it had failed to discharge that duty when without proper checks and balances and or warnings, allowed a fraudster to operate in its banking halls leading to a customer losing his hard-earned money. This constitutes the highest form of dereliction of duty by a commercial institution.

31. In this regard, I endorse the pronouncement of Brightman J in Karak Brother Company Ltd vs Burden [1972] 1 All ER 1210, which has been cited with approval in several of our local cases where the learned Judge stated: -

“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 not to the authorized signatories…”

“… while carrying out the customer’s instruction a bank is under obligation to exercise reasonable skill and care. That skill and care applies to interpreting, ascertaining and acting in accordance with the instructions of the customer.”

32. The court further observed: -

“In exercising its duty of care the paying bank was bound to make such enquiries as might, in given circumstances, be appropriate and practical, where it had, or a reasonable banker would have, grounds of believing that the authorised signatories were misusing their authority for purposes of defrauding their principal or otherwise defeating his true intentions.” Emphasis mine.

33. Taking all the above into consideration, it is my finding that the appellant was negligent, imprudent and incautious in the dealings between Mr.Rop and the respondent. Consequently, I agree with the learned trial magistrate’s finding that the insinuation by DW1 that Mr. Rop was an employee of Kingdom Securities Limited is without any basis. I also agree with the learned trial court that on a balance of probabilities, the respondent had proved that Dennis Rop was indeed an employee of the appellant and that the bank was negligent in how it transacted with the respondent.

34. I therefore see no reason to depart from the learned trial magistrate findings.

35. In the end, I come to the conclusion that the learned trial magistrate did not err in entering judgment in favour of the respondent as against the appellant. Consequently, this appeal is hereby dismissed with costs.

DATED, SIGNED AND DELIVERED AT ELDORET ON THIS 15^TH DAY OF MARCH  2022.

E.K. OGOLA

JUDGE