REPUBLIC OF KENYA
IN THE HIGH COURT OF KENYA AT NAIROBI
MILIMANI COMMERCIAL COURTS
COMMERCIAL AND TAX DIVISION
COMMERCIAL APPEAL NO. E103 OF 2021
ALICE WANJIRU MUIGAI……………….……………APPELLANT
VERSUS
SBG SECURITIES LIMITED………………......…1ST RESPONDENT INVESTOX CAPITAL LIMITED………..…….....2ND RESPONDENT
(An Appeal against part of the Judgment and Decree of Hon. A.N Makau, Principal Magistrate, delivered on 22nd October 2021 in C.M. COMM. No. 2824 of 2014).
JUDGMENT
1. The suit against the 1st and 2nd respondents in the lower Court was that on or about July 2008, the 2nd respondent introduced the appellant to the 1st respondent, a professional stockbroker. The appellant and the 1st respondent entered into an agency agreement whereby the 1st respondent would undertake investment services on her behalf in the capital markets. The appellant opened a Central Depository & Settlement Corporation (CDSC) Limited Account with the 1st respondent. The appellant then gave the 2nd respondent a Banker’s cheque drawn in favour of CFC Stanbic Securities Limited (the 1st respondent) for the sum of Kshs.1,000,000/-, derived from her pension, which was thereafter deposited into her CDSC account.
2. On 2nd July, 2008, the 1st respondent bought 18,500 ICDC shares at Kshs.27.00 each, 7500 EABL shares at Kshs.40.00 each and 25,000 Safaricom Ltd shares at Kshs.7.15 each on her behalf. The appellant contended that these share purchases were done without her express authorization as she did not sign the order form dated 2nd July, 2008, which predates the Banker’s cheque dated 3rd July, 2008. The appellant claimed that the 2nd respondent’s employee forged her signature on the order form dated 2nd July, 2008 allowing the 1st respondent to transact freely with her account without her express authority. She also claimed that from July 2008 to 2010, there were several share transactions done through the appellant’s CDSC account, which were also illegal and unauthorized and that she reported this to the 1st respondent.
3. Further, the appellant claimed that the shares that she had transferred from Nyaga Stockbrokers to the 1st respondent, being 700 Access Kenya shares, 1233 Kenya Re shares and 300 KCB shares were mishandled.
4. Through a letter dated 10th February, 2010, the 2nd respondent through Solomon Maina, admitted that there was irregular purchase and sale of shares by its former partner David Njoroge and assured her that they would reinstate her account to the original status but nothing was done. She stated that although she lodged a complaint with the 2nd respondent, no action was taken prompting her to report the matter regarding the alleged irregular transactions on her CDSC account to the Capital Markets Authority. The Authority’s decision did not go well with her, prompting the filing of the suit before the lower Court seeking general damages, special damages of Kshs.1,038,208.71 and costs of the suit plus interest.
5. The 1st respondent filed a statement of defence dated 8th July, 2014 denying the alleged breach of fiduciary duties and statutory obligations and the alleged fraud and its particulars. The 1st respondent claimed that it was not a party nor privy to the agreement between the appellant and the 2nd respondent who acted as her personal agent. The 1st respondent averred that it did not transact with the appellant directly but as per orders received from the 2nd respondent. The 1st respondent stated that although the appellant and the 2nd respondent had discussions regarding the alleged irregular share transactions, the appellant only formally lodged a complaint regarding the alleged unauthorized transactions on her CDSC account with it after six months had elapsed.
6. The 2nd respondent also filed a defence denying that it carried out any unauthorized transactions or forged the appellant’s signature. The 2nd respondent confirmed receiving the cheque for Kshs. 1,000,000/- drawn in favour of the 1st respondent and deposited to the credit of the appellant. The 2nd respondent also averred that having accepted funds realized from the various transactions undertaken, the appellant was estopped from claiming irregularity.
7. In the lower Court, judgment was entered for the appellant as against the 1st respondent for Kshs.1,079,303.26 special damages and costs of the suit and interest on both at Court rates from the time of filing the suit until full settlement. The Trial Court dismissed the prayer for general damages and the claim against the 2nd respondent with costs for lack of sufficient evidence.
8. Being dissatisfied with the said judgment, the appellant filed a Memorandum of Appeal dated 15th November, 2021 raising the following grounds of appeal-
(1) That the Learned Magistrate erred in fact and law in discounting and disbelieving the oral and documentary evidence given on behalf of the plaintiff on the fraudulently (sic) trading of the plaintiff’s CDSC account and misappropriation of funds of Kshs.1,000,000/= by the 1st and 2nd respondents deposited for purposes of trading.
(2) That the learned Magistrate erred in law and fact in determining that the 2nd respondent has no liability for fraudulent trading of the plaintiff’s CDSC account.
(3) That the learned Magistrate erred in law and fact in determining that the plaintiff had not tendered sufficient evidence to prove that the plaintiff’s signature was a forgery.
(4) That the learned Magistrate erred in law and fact in determining that the plaintiff is not owed general damages for fraudulent actions and breach of fiduciary duty of the 1st and 2nd respondents.
(5) That the Learned Magistrate erred in law and fact in the analysis of the evidence given and in doing so reached the wrong conclusion.
9. The appellant’s prayer is for this Court to allow the appeal with costs of the appeal and costs of CMCC No. 2824 of 2014 and to set aside the judgment dated 22nd October, 2021. The other prayers are for judgment to be entered for the appellant against the 1st and 2nd respondents for general damages plus interest at Court rates and for such general damages to be assessed by this Court.
10. The appeal was canvassed by way of written submissions with oral highlights. The appellant filed written submissions dated 25th September 2022 and supplementary written submissions dated 15th December, 2022, whereas the 1st respondent filed written submissions dated 28th October, 2022.
11. The appellant faulted the Trial Court for finding that there was no proof of fraud or forgery of her signature, arguing that the Trial Court did not take into account the documentary and oral evidence given. The appellant also submitted that the Trial Court erred in law and fact in determining that the appellant is not owed general damages for fraudulent actions and breach of fiduciary duty of the 1st and 2nd respondents.
12. The appellant relied on Section 16(5)(a-e) of the Capital Markets (Online Foreign Exchange Trading) Regulations, 2017 on the principles of best practice for online foreign exchange brokers. The appellant also relied on Section 23(a-b) of the Capital Markets (Licensing Requirements) (General) Regulations, 2002 to the effect that a stockbroker should only accept written orders.
13. In regard to her acceptance of cheques from the 1st respondent, the appellant relied on the case Njogu & Co. Advocates v National Bank of Kenya Ltd [2016] eKLR, where the Court stated that a professional who acts contrary to the rules of his profession which he should be well aware of, cannot rely on illegality as a defence. The appellant also submitted that she was not satisfied with the Capital Markets Authority's decision as it did not assist her to procure a refund of her initial deposit. She urged this Court to disregard its findings on ground of bias.
14. The appellant asserted that the 2nd respondent was negligent in the handling of her account for failing to seek written instructions for the numerous transactions that took place on her account. She highlighted that in the letter dated 10th February, 2010, Mr. Solomon Maina, the Managing Director of the 2nd respondent made an admission of irregular purchase and sale of shares and acknowledged that damage had been occasioned to the appellant as a result. The appellant further submitted that the 1st respondent is estopped from denying liability since it is a licensed stock broker and is obligated to follow the regulations on stock trading, yet it relied on the forged order form without seeking written authorisation.
15. The appellant argued that she is owed general damages of Kshs.5,000,000/- for the malicious and fraudulent acts of the 1st and 2nd respondents and for breach of the fiduciary duty owed to her.
16. The appellant conceded that as a general rule, general damages are not awarded for breach of contract, but relied on the case of Rose Wangui Githiomi v Nancy Nyambura Maina [2018] eKLR, and asserted that the circumstances of this case are an exception to the said rule because the 1st and 2nd respondents’ actions were oppressive, high handed, outrageous, insolent or vindictive because they disregarded her right to make decisions on her trading account and fraudulently mismanaged the funds in her account. She contended that despite the fact there were forgeries of her signature, no remedy has been provided by either the 1st or 2nd respondents. Additionally, she stated that she has had no access to her capital deposit and her complaints were ignored by the respondents before she sought relief before Court.
17. The appellant relied on the decision in Otieno-Omuga & Ouma Advocates v CFC Stanbic Bank Limited [2015] eKLR, where the Court awarded general damages in the sum of Kshs.6,000,000/- for breach of contractual and fiduciary duties by the bank. The appellant also relied on C. Mehta and Company Limited v Barclays Bank of Kenya Limited [2019] eKLR, where the Court awarded general damages of Kshs.3,000,000/- as compensation for breach of contract and disrepute to the plaintiff’s creditworthiness and reputation.
18. On its part, the 1st respondent submitted that it was clearly admitted by the appellant that the 2nd respondent was her duly authorised agent, thus the 1st respondent was not privy to the dealings between the appellant and the 2nd respondent. That the 1st respondent would only receive orders by the appellant processed through the 2nd respondent and there was no requirement or agreement, not even in the letter of authorisation, for the 1st respondent on its own accord or jointly with the 2nd respondent, to alert the appellant and seek her approval prior to transacting on her CDSC account as alleged by the appellant.
19. It is not disputed that the appellant gave the 2nd respondent authority to sell and buy shares on her behalf in the stock market creating an agency relationship. What was implied authority was later made express by execution of the letter of authorization dated 20th April, 2010. That the said letter of authorization which the appellant admitted to signing, authorized the 2nd respondent to transact on her behalf as the duly authorized agent with respect to her CDSC Account number 6217478.
20. The 1st respondent relied on the case of Lucy Nungari Ngigi & 4 others v National Bank of Kenya Limited & another [2015] eKLR, where the Court adopted the position in Garnac Grain Co. Inc. versus H.M. Faure & Fair Dough Ltd and Bunge Corporation (1967] 2 All ER 353, that the principal-agent relationship can only be established by the consent of both either expressly or by implication from their words and conduct, even if they do not recognize it themselves and even if they have professed to disclaim it.
21. The 1st respondent also submitted that since there was no agreement between it and the appellant as to create liability, the 2nd respondent’s breach of the agency relationship could not be enforced against the 1st respondent. The 1st respondent contended that it cannot be blamed since it did not act on its own accord but acted as per the orders and instructions from the 2nd respondent. The 1st respondent relied on Savings & Loan (K) Limited v Kanyenje Karangaita Gakombe & Another [2015] eKLR, on the doctrine of privity of contract.
22. The 1st respondent further argued that by collecting cheques of proceeds from the transactions, the appellant ratified her agent's decisions in some of these transactions which she claims were done without her approval, and she collected cheques being proceeds from the purchase and sale transactions, thereby ratifying her agent's decisions.
ANALYSIS AND DETERMINATION
23. I have re-examined the Record of Appeal and given due consideration to the submissions by the parties’ respective Counsel. The issues for determination are:-
(1) Whether Trial Court was correct in finding that the plaintiff tendered insufficient evidence to prove that the signature on the order form was a forgery;
(2) Whether the Trial Court rightly found that the 2nd respondent was not liable for fraudulent trading of plaintiff’s CDSC account; and
(3) Whether the appellant is entitled to general damages for alleged fraudulent actions and breach of fiduciary duty by the 1st and 2nd respondents.
24. This being a first appeal, this Court is cognizant of its duty as set out by the Court of Appeal in the case of Abok James Odera t/a A. J. Odera & Associates v John Patrick Machira t/a Machira & Co. Advocates [2013] eKLR, as follows: -
“This being a first appeal, we are reminded of our primary role as a first appellate court namely, to re-evaluate, re-assess and reanalyze the extracts on the record and then determine whether the conclusions reached by the learned trial Judge are to stand or not and give reasons either way. See the case of Kenya Ports Authority versus Kusthon (Kenya) Limited (2000) 2EA 212 wherein the Court of Appeal held, inter alia, that: -
“On a first appeal from the High court, the Court of Appeal should consider the evidence, evaluate it itself and draw its own conclusions though it should always bear in mind it has neither seen nor heard the witnesses and should make due allowance in that respect. Secondly that the responsibility of the court is to rule on the evidence on record and not to introduce extraneous matters not dealt with by the parties in the evidence.”
25. In Nkube v Nyamiro [1983] KLR 403, the Court of Appeal stated the following-
“A court on appeal will not normally interfere with the finding of fact by a trial court unless it is based on no evidence, or on a misapprehension of the evidence, or the judge is shown demonstrably to have acted on wrong principles in reaching his conclusion.”
26. On the first and second issues which are related, the appellant submitted that the 2nd respondent forged the signature on the order form on 2nd July, 2008, thereby allowing the 1st respondent to transact freely with her account without her express authorization, and that this happened a day before she issued the Banker’s cheque dated 3rd July, 2008, in favour of the 1st respondent. The appellant faulted the Trial Court for failure to take into account her oral evidence in regard to the forgery, and the documentary evidence she produced in Court, being the original deposit slip with her authentic signature, the order form dated 2nd July, 2008 alleged to have been forged, the Criminal Investigation Report reference CID/ORG/8/3/3/1267 of 2013 and the 2nd respondent’s letter of 10th February, 2010 admitting that there was irregular trading.
27. On the above issues, the Trial Court found as follows-
“… There was agent/ principal relationship and as such I find the issue of fraud was not produced by the plaintiff” …………………
As far as the allegations of fraud is concerned and claims of forgery, I find that the matter was reported to the DCI officers but no outcome/report was proved or signatures to prove that they were not made by the plaintiff and as such the allegations have not been substantiated or corroborated by tangible evidence.”
28. I have perused at the Record of Appeal and noted that the appellant produced the original deposit slip with her authentic signature, the alleged forged order form dated 2nd July, 2008, the Criminal Investigation Report reference No. CID/ORG/8/3/3/1267 of 2013 and the 2nd respondent’s letter of 10th February, 2010. I however do not agree with the appellant’s submission that the Trial Court fell into error by failing to consider her oral evidence and the documentary evidence she produced with respect to the forgery of her signature.
29. I have looked at the order form together with the original deposit slip and the DCI Forensic Document Examiner’s Report CID/ORG/8/3/3/1267 of 2013 prepared by John Muinde (SP). Copies of the Document Examiner’s Report are contained in the lower Court file and the Record of Appeal. Although the reports contain comparisons of the signature in the questioned document exhibit marked A and the specimen signature exhibit marked B, the said copies of the report do not contain any findings by the Examiner. It appears that an incomplete report was relied on by the appellant in the Trial Court, as that is what is available on the record. That being the case, the said report is inconclusive.
30. Section 107(1) of the Evidence Act provides as follows-
“Whoever desires any court to give judgment as to any legal right or liability dependent on the existence of facts which he asserts must prove that those facts exist.”
31. Courts have held in precedents that since fraud or forgery is a serious allegation, the standard of proof required is higher than that required in ordinary civil cases of a balance of probabilities but not beyond reasonable doubt. The balance of proof required for such an allegation is intermediate, falling in between the two scales. That was held by the Court of Appeal in Kinyanjui Kamau v George Kamau Njoroge [2015] eKLR, as follows-
“It is trite law that any allegations of fraud must be pleaded and strictly proved. See Ndolo v Ndolo (2008) 1 KLR (G&F) 742 wherein the Court stated that:
“...We start by saying that it was the respondent who was alleging that the will was a forgery and the burden to prove that allegation lay squarely on him. Since the respondent was making a serious charge of forgery or fraud, the standard of proof required of him was obviously higher than that required in ordinary civil cases, namely proof upon a balance of probabilities; but the burden of proof on the respondent was certainly not one beyond a reasonable doubt as in criminal cases...”
32. In my assessment, there was no admission of the forgery in the letter dated 10th February, 2010 authored by the 2nd respondent’s director, which states in paragraph 1 as follows-
“Following the irregular purchase and sale of shares in the above mentioned CDS account by David Njoroge, then, Partner Investox Capital), I SOLOMON MAINA take full responsibility for the damage done. Kindly accept my sincere apologies on behalf of Investox Capital.”
33. My finding is that there was an agency relationship between the 1st and 2nd respondents, with the former being the stockbroker and the latter being the stockbroking agent. Under the Capital Markets Act, the terms stockbroker and stockbroking agent are defined as follows:-
“stockbroker” means a person who carries on the business of buying or selling of securities as an agent for investors in return for a commission
“stockbroking agent” means a person, not being a salaried employee of a stockbroker, who, in consideration of a commission, solicits or procures stockbroking business on behalf of a stockbroker;”
34. Since the 2nd respondent acted as an agent of the 1st respondent, the appellant’s claim as against the 2nd respondent cannot be sustained as there is a disclosed principal. In Anthony Francis Wareheim T/A Wareheim & 2 Others v Kenya Post Office Savings Bank, Civil Appln Nos. Nai 5 & 48 of 2002, the Court of Appeal held thus:
“It was also prima facie imperative that the court should have dismissed the respondent’s claim against the second and third appellants for they were impleaded as agents of a disclosed principal contrary to the clear principal of common law that where the principal is disclosed, the agent is not to be sued. Furthermore, the court having found on the evidence that the second and third appellants were principals in their own right and not agents of the first appellant in the transaction giving rise to the suit, it should have dismissed the suit against the first appellant who had been sued as the principal.”
35. In view of the above decision, I find that the Trial Court rightly concluded that there was insufficient evidence of forgery on the part of the 2nd respondent and that it was not liable for fraudulent trading with the appellant’s CDSC account.
36. As to the question of whether general damages can be awarded for breach of contract, the Court of Appeal in Dharamshi v Karsan [1974] EA 41, held as follows-
“As a general principle, the purpose of damages for breach of contract is, subject to mitigation of loss, the claimant is to be put as far as possible in the same position he would have been if the breach complained of had not occurred. The measure of damages is in accordance with the rule established in the case of Hadley v Baxendale (1854) 9. Exch.341 that the measure of damages is such as may be fairly and reasonably be considered arising naturally from the breach itself or such as may be reasonably contemplated by the parties at the time the contract was made and a probable result of such breach. Such damages are not damages at large or general damages but are in the nature of special damages and they must be pleaded and proved.”
37. The appellant herein conceded that the general damages are not awarded for breach of contract. Courts have cautioned parties to carefully consider the causes of action they choose to pursue as the choice also affects the type of damages to be awarded. In Barclays Bank of Kenya Limited v Mema [2021] eKLR, Hon. Majanja J., made the following observation-
“Resolution of the second issue depends on whether the Respondent’s cause of action is in tort or contract. This is because, the same set of facts may yield difference causes of action for a claimant and it is the duty of the claimant to elect which cause of action it wishes to pursue and plead it accordingly. The difference between the law of tort of contract is not merely academic but of real and practical significance. A case grounded on tort is founded on a general duty of care imposed by the law while a case for breach of contract arises from the agreement between the parties (see A. G. Guest, “Tort of Contract” [1961] 3 University of Malaya Law Review 191).
I reiterate that a party who wishes to pursue its case, must therefore elect the cause of action it wishes pursue and plead its case accordingly. This is what the court stated in Reuben Kioko Mutyane v Kenya Commercial Bank; Transunion t/a Credit Reference Bureau Africa Limited (Interested Party) (Supra) that, ‘’That duty of care may also arise both in, contract and tort. It is therefore upon the customer to elect to pursue one or both, taking into account issues of Limitation periods and rules as to remoteness of damages…. ‘’.
38. The upshot is that the appeal herein is devoid of merit. It is dismissed with costs to the 1st respondent. It is noted that the 2nd respondent did not participate in this appeal.
It is so ordered.
DATED, SIGNED and DELIVERED at NAIROBI on this 1st day of December, 2023. Judgment delivered through Microsoft Teams Online Platform.
NJOKI MWANGI
JUDGE
In the presence of:
Ms Dida h/b for Mr. Mutiso for the appellant
No appearance for the 1st respondent
No appearance for the 2nd respondent
Ms B. Wokabi – Court Assistant.
IN THE HIGH COURT OF KENYA AT NAIROBI
MILIMANI COMMERCIAL COURTS
COMMERCIAL AND TAX DIVISION
COMMERCIAL APPEAL NO. E103 OF 2021
ALICE WANJIRU MUIGAI……………….……………APPELLANT
VERSUS
SBG SECURITIES LIMITED………………......…1ST RESPONDENT INVESTOX CAPITAL LIMITED………..…….....2ND RESPONDENT
(An Appeal against part of the Judgment and Decree of Hon. A.N Makau, Principal Magistrate, delivered on 22nd October 2021 in C.M. COMM. No. 2824 of 2014).
JUDGMENT
1. The suit against the 1st and 2nd respondents in the lower Court was that on or about July 2008, the 2nd respondent introduced the appellant to the 1st respondent, a professional stockbroker. The appellant and the 1st respondent entered into an agency agreement whereby the 1st respondent would undertake investment services on her behalf in the capital markets. The appellant opened a Central Depository & Settlement Corporation (CDSC) Limited Account with the 1st respondent. The appellant then gave the 2nd respondent a Banker’s cheque drawn in favour of CFC Stanbic Securities Limited (the 1st respondent) for the sum of Kshs.1,000,000/-, derived from her pension, which was thereafter deposited into her CDSC account.
2. On 2nd July, 2008, the 1st respondent bought 18,500 ICDC shares at Kshs.27.00 each, 7500 EABL shares at Kshs.40.00 each and 25,000 Safaricom Ltd shares at Kshs.7.15 each on her behalf. The appellant contended that these share purchases were done without her express authorization as she did not sign the order form dated 2nd July, 2008, which predates the Banker’s cheque dated 3rd July, 2008. The appellant claimed that the 2nd respondent’s employee forged her signature on the order form dated 2nd July, 2008 allowing the 1st respondent to transact freely with her account without her express authority. She also claimed that from July 2008 to 2010, there were several share transactions done through the appellant’s CDSC account, which were also illegal and unauthorized and that she reported this to the 1st respondent.
3. Further, the appellant claimed that the shares that she had transferred from Nyaga Stockbrokers to the 1st respondent, being 700 Access Kenya shares, 1233 Kenya Re shares and 300 KCB shares were mishandled.
4. Through a letter dated 10th February, 2010, the 2nd respondent through Solomon Maina, admitted that there was irregular purchase and sale of shares by its former partner David Njoroge and assured her that they would reinstate her account to the original status but nothing was done. She stated that although she lodged a complaint with the 2nd respondent, no action was taken prompting her to report the matter regarding the alleged irregular transactions on her CDSC account to the Capital Markets Authority. The Authority’s decision did not go well with her, prompting the filing of the suit before the lower Court seeking general damages, special damages of Kshs.1,038,208.71 and costs of the suit plus interest.
5. The 1st respondent filed a statement of defence dated 8th July, 2014 denying the alleged breach of fiduciary duties and statutory obligations and the alleged fraud and its particulars. The 1st respondent claimed that it was not a party nor privy to the agreement between the appellant and the 2nd respondent who acted as her personal agent. The 1st respondent averred that it did not transact with the appellant directly but as per orders received from the 2nd respondent. The 1st respondent stated that although the appellant and the 2nd respondent had discussions regarding the alleged irregular share transactions, the appellant only formally lodged a complaint regarding the alleged unauthorized transactions on her CDSC account with it after six months had elapsed.
6. The 2nd respondent also filed a defence denying that it carried out any unauthorized transactions or forged the appellant’s signature. The 2nd respondent confirmed receiving the cheque for Kshs. 1,000,000/- drawn in favour of the 1st respondent and deposited to the credit of the appellant. The 2nd respondent also averred that having accepted funds realized from the various transactions undertaken, the appellant was estopped from claiming irregularity.
7. In the lower Court, judgment was entered for the appellant as against the 1st respondent for Kshs.1,079,303.26 special damages and costs of the suit and interest on both at Court rates from the time of filing the suit until full settlement. The Trial Court dismissed the prayer for general damages and the claim against the 2nd respondent with costs for lack of sufficient evidence.
8. Being dissatisfied with the said judgment, the appellant filed a Memorandum of Appeal dated 15th November, 2021 raising the following grounds of appeal-
(1) That the Learned Magistrate erred in fact and law in discounting and disbelieving the oral and documentary evidence given on behalf of the plaintiff on the fraudulently (sic) trading of the plaintiff’s CDSC account and misappropriation of funds of Kshs.1,000,000/= by the 1st and 2nd respondents deposited for purposes of trading.
(2) That the learned Magistrate erred in law and fact in determining that the 2nd respondent has no liability for fraudulent trading of the plaintiff’s CDSC account.
(3) That the learned Magistrate erred in law and fact in determining that the plaintiff had not tendered sufficient evidence to prove that the plaintiff’s signature was a forgery.
(4) That the learned Magistrate erred in law and fact in determining that the plaintiff is not owed general damages for fraudulent actions and breach of fiduciary duty of the 1st and 2nd respondents.
(5) That the Learned Magistrate erred in law and fact in the analysis of the evidence given and in doing so reached the wrong conclusion.
9. The appellant’s prayer is for this Court to allow the appeal with costs of the appeal and costs of CMCC No. 2824 of 2014 and to set aside the judgment dated 22nd October, 2021. The other prayers are for judgment to be entered for the appellant against the 1st and 2nd respondents for general damages plus interest at Court rates and for such general damages to be assessed by this Court.
10. The appeal was canvassed by way of written submissions with oral highlights. The appellant filed written submissions dated 25th September 2022 and supplementary written submissions dated 15th December, 2022, whereas the 1st respondent filed written submissions dated 28th October, 2022.
11. The appellant faulted the Trial Court for finding that there was no proof of fraud or forgery of her signature, arguing that the Trial Court did not take into account the documentary and oral evidence given. The appellant also submitted that the Trial Court erred in law and fact in determining that the appellant is not owed general damages for fraudulent actions and breach of fiduciary duty of the 1st and 2nd respondents.
12. The appellant relied on Section 16(5)(a-e) of the Capital Markets (Online Foreign Exchange Trading) Regulations, 2017 on the principles of best practice for online foreign exchange brokers. The appellant also relied on Section 23(a-b) of the Capital Markets (Licensing Requirements) (General) Regulations, 2002 to the effect that a stockbroker should only accept written orders.
13. In regard to her acceptance of cheques from the 1st respondent, the appellant relied on the case Njogu & Co. Advocates v National Bank of Kenya Ltd [2016] eKLR, where the Court stated that a professional who acts contrary to the rules of his profession which he should be well aware of, cannot rely on illegality as a defence. The appellant also submitted that she was not satisfied with the Capital Markets Authority's decision as it did not assist her to procure a refund of her initial deposit. She urged this Court to disregard its findings on ground of bias.
14. The appellant asserted that the 2nd respondent was negligent in the handling of her account for failing to seek written instructions for the numerous transactions that took place on her account. She highlighted that in the letter dated 10th February, 2010, Mr. Solomon Maina, the Managing Director of the 2nd respondent made an admission of irregular purchase and sale of shares and acknowledged that damage had been occasioned to the appellant as a result. The appellant further submitted that the 1st respondent is estopped from denying liability since it is a licensed stock broker and is obligated to follow the regulations on stock trading, yet it relied on the forged order form without seeking written authorisation.
15. The appellant argued that she is owed general damages of Kshs.5,000,000/- for the malicious and fraudulent acts of the 1st and 2nd respondents and for breach of the fiduciary duty owed to her.
16. The appellant conceded that as a general rule, general damages are not awarded for breach of contract, but relied on the case of Rose Wangui Githiomi v Nancy Nyambura Maina [2018] eKLR, and asserted that the circumstances of this case are an exception to the said rule because the 1st and 2nd respondents’ actions were oppressive, high handed, outrageous, insolent or vindictive because they disregarded her right to make decisions on her trading account and fraudulently mismanaged the funds in her account. She contended that despite the fact there were forgeries of her signature, no remedy has been provided by either the 1st or 2nd respondents. Additionally, she stated that she has had no access to her capital deposit and her complaints were ignored by the respondents before she sought relief before Court.
17. The appellant relied on the decision in Otieno-Omuga & Ouma Advocates v CFC Stanbic Bank Limited [2015] eKLR, where the Court awarded general damages in the sum of Kshs.6,000,000/- for breach of contractual and fiduciary duties by the bank. The appellant also relied on C. Mehta and Company Limited v Barclays Bank of Kenya Limited [2019] eKLR, where the Court awarded general damages of Kshs.3,000,000/- as compensation for breach of contract and disrepute to the plaintiff’s creditworthiness and reputation.
18. On its part, the 1st respondent submitted that it was clearly admitted by the appellant that the 2nd respondent was her duly authorised agent, thus the 1st respondent was not privy to the dealings between the appellant and the 2nd respondent. That the 1st respondent would only receive orders by the appellant processed through the 2nd respondent and there was no requirement or agreement, not even in the letter of authorisation, for the 1st respondent on its own accord or jointly with the 2nd respondent, to alert the appellant and seek her approval prior to transacting on her CDSC account as alleged by the appellant.
19. It is not disputed that the appellant gave the 2nd respondent authority to sell and buy shares on her behalf in the stock market creating an agency relationship. What was implied authority was later made express by execution of the letter of authorization dated 20th April, 2010. That the said letter of authorization which the appellant admitted to signing, authorized the 2nd respondent to transact on her behalf as the duly authorized agent with respect to her CDSC Account number 6217478.
20. The 1st respondent relied on the case of Lucy Nungari Ngigi & 4 others v National Bank of Kenya Limited & another [2015] eKLR, where the Court adopted the position in Garnac Grain Co. Inc. versus H.M. Faure & Fair Dough Ltd and Bunge Corporation (1967] 2 All ER 353, that the principal-agent relationship can only be established by the consent of both either expressly or by implication from their words and conduct, even if they do not recognize it themselves and even if they have professed to disclaim it.
21. The 1st respondent also submitted that since there was no agreement between it and the appellant as to create liability, the 2nd respondent’s breach of the agency relationship could not be enforced against the 1st respondent. The 1st respondent contended that it cannot be blamed since it did not act on its own accord but acted as per the orders and instructions from the 2nd respondent. The 1st respondent relied on Savings & Loan (K) Limited v Kanyenje Karangaita Gakombe & Another [2015] eKLR, on the doctrine of privity of contract.
22. The 1st respondent further argued that by collecting cheques of proceeds from the transactions, the appellant ratified her agent's decisions in some of these transactions which she claims were done without her approval, and she collected cheques being proceeds from the purchase and sale transactions, thereby ratifying her agent's decisions.
ANALYSIS AND DETERMINATION
23. I have re-examined the Record of Appeal and given due consideration to the submissions by the parties’ respective Counsel. The issues for determination are:-
(1) Whether Trial Court was correct in finding that the plaintiff tendered insufficient evidence to prove that the signature on the order form was a forgery;
(2) Whether the Trial Court rightly found that the 2nd respondent was not liable for fraudulent trading of plaintiff’s CDSC account; and
(3) Whether the appellant is entitled to general damages for alleged fraudulent actions and breach of fiduciary duty by the 1st and 2nd respondents.
24. This being a first appeal, this Court is cognizant of its duty as set out by the Court of Appeal in the case of Abok James Odera t/a A. J. Odera & Associates v John Patrick Machira t/a Machira & Co. Advocates [2013] eKLR, as follows: -
“This being a first appeal, we are reminded of our primary role as a first appellate court namely, to re-evaluate, re-assess and reanalyze the extracts on the record and then determine whether the conclusions reached by the learned trial Judge are to stand or not and give reasons either way. See the case of Kenya Ports Authority versus Kusthon (Kenya) Limited (2000) 2EA 212 wherein the Court of Appeal held, inter alia, that: -
“On a first appeal from the High court, the Court of Appeal should consider the evidence, evaluate it itself and draw its own conclusions though it should always bear in mind it has neither seen nor heard the witnesses and should make due allowance in that respect. Secondly that the responsibility of the court is to rule on the evidence on record and not to introduce extraneous matters not dealt with by the parties in the evidence.”
25. In Nkube v Nyamiro [1983] KLR 403, the Court of Appeal stated the following-
“A court on appeal will not normally interfere with the finding of fact by a trial court unless it is based on no evidence, or on a misapprehension of the evidence, or the judge is shown demonstrably to have acted on wrong principles in reaching his conclusion.”
26. On the first and second issues which are related, the appellant submitted that the 2nd respondent forged the signature on the order form on 2nd July, 2008, thereby allowing the 1st respondent to transact freely with her account without her express authorization, and that this happened a day before she issued the Banker’s cheque dated 3rd July, 2008, in favour of the 1st respondent. The appellant faulted the Trial Court for failure to take into account her oral evidence in regard to the forgery, and the documentary evidence she produced in Court, being the original deposit slip with her authentic signature, the order form dated 2nd July, 2008 alleged to have been forged, the Criminal Investigation Report reference CID/ORG/8/3/3/1267 of 2013 and the 2nd respondent’s letter of 10th February, 2010 admitting that there was irregular trading.
27. On the above issues, the Trial Court found as follows-
“… There was agent/ principal relationship and as such I find the issue of fraud was not produced by the plaintiff” …………………
As far as the allegations of fraud is concerned and claims of forgery, I find that the matter was reported to the DCI officers but no outcome/report was proved or signatures to prove that they were not made by the plaintiff and as such the allegations have not been substantiated or corroborated by tangible evidence.”
28. I have perused at the Record of Appeal and noted that the appellant produced the original deposit slip with her authentic signature, the alleged forged order form dated 2nd July, 2008, the Criminal Investigation Report reference No. CID/ORG/8/3/3/1267 of 2013 and the 2nd respondent’s letter of 10th February, 2010. I however do not agree with the appellant’s submission that the Trial Court fell into error by failing to consider her oral evidence and the documentary evidence she produced with respect to the forgery of her signature.
29. I have looked at the order form together with the original deposit slip and the DCI Forensic Document Examiner’s Report CID/ORG/8/3/3/1267 of 2013 prepared by John Muinde (SP). Copies of the Document Examiner’s Report are contained in the lower Court file and the Record of Appeal. Although the reports contain comparisons of the signature in the questioned document exhibit marked A and the specimen signature exhibit marked B, the said copies of the report do not contain any findings by the Examiner. It appears that an incomplete report was relied on by the appellant in the Trial Court, as that is what is available on the record. That being the case, the said report is inconclusive.
30. Section 107(1) of the Evidence Act provides as follows-
“Whoever desires any court to give judgment as to any legal right or liability dependent on the existence of facts which he asserts must prove that those facts exist.”
31. Courts have held in precedents that since fraud or forgery is a serious allegation, the standard of proof required is higher than that required in ordinary civil cases of a balance of probabilities but not beyond reasonable doubt. The balance of proof required for such an allegation is intermediate, falling in between the two scales. That was held by the Court of Appeal in Kinyanjui Kamau v George Kamau Njoroge [2015] eKLR, as follows-
“It is trite law that any allegations of fraud must be pleaded and strictly proved. See Ndolo v Ndolo (2008) 1 KLR (G&F) 742 wherein the Court stated that:
“...We start by saying that it was the respondent who was alleging that the will was a forgery and the burden to prove that allegation lay squarely on him. Since the respondent was making a serious charge of forgery or fraud, the standard of proof required of him was obviously higher than that required in ordinary civil cases, namely proof upon a balance of probabilities; but the burden of proof on the respondent was certainly not one beyond a reasonable doubt as in criminal cases...”
32. In my assessment, there was no admission of the forgery in the letter dated 10th February, 2010 authored by the 2nd respondent’s director, which states in paragraph 1 as follows-
“Following the irregular purchase and sale of shares in the above mentioned CDS account by David Njoroge, then, Partner Investox Capital), I SOLOMON MAINA take full responsibility for the damage done. Kindly accept my sincere apologies on behalf of Investox Capital.”
33. My finding is that there was an agency relationship between the 1st and 2nd respondents, with the former being the stockbroker and the latter being the stockbroking agent. Under the Capital Markets Act, the terms stockbroker and stockbroking agent are defined as follows:-
“stockbroker” means a person who carries on the business of buying or selling of securities as an agent for investors in return for a commission
“stockbroking agent” means a person, not being a salaried employee of a stockbroker, who, in consideration of a commission, solicits or procures stockbroking business on behalf of a stockbroker;”
34. Since the 2nd respondent acted as an agent of the 1st respondent, the appellant’s claim as against the 2nd respondent cannot be sustained as there is a disclosed principal. In Anthony Francis Wareheim T/A Wareheim & 2 Others v Kenya Post Office Savings Bank, Civil Appln Nos. Nai 5 & 48 of 2002, the Court of Appeal held thus:
“It was also prima facie imperative that the court should have dismissed the respondent’s claim against the second and third appellants for they were impleaded as agents of a disclosed principal contrary to the clear principal of common law that where the principal is disclosed, the agent is not to be sued. Furthermore, the court having found on the evidence that the second and third appellants were principals in their own right and not agents of the first appellant in the transaction giving rise to the suit, it should have dismissed the suit against the first appellant who had been sued as the principal.”
35. In view of the above decision, I find that the Trial Court rightly concluded that there was insufficient evidence of forgery on the part of the 2nd respondent and that it was not liable for fraudulent trading with the appellant’s CDSC account.
36. As to the question of whether general damages can be awarded for breach of contract, the Court of Appeal in Dharamshi v Karsan [1974] EA 41, held as follows-
“As a general principle, the purpose of damages for breach of contract is, subject to mitigation of loss, the claimant is to be put as far as possible in the same position he would have been if the breach complained of had not occurred. The measure of damages is in accordance with the rule established in the case of Hadley v Baxendale (1854) 9. Exch.341 that the measure of damages is such as may be fairly and reasonably be considered arising naturally from the breach itself or such as may be reasonably contemplated by the parties at the time the contract was made and a probable result of such breach. Such damages are not damages at large or general damages but are in the nature of special damages and they must be pleaded and proved.”
37. The appellant herein conceded that the general damages are not awarded for breach of contract. Courts have cautioned parties to carefully consider the causes of action they choose to pursue as the choice also affects the type of damages to be awarded. In Barclays Bank of Kenya Limited v Mema [2021] eKLR, Hon. Majanja J., made the following observation-
“Resolution of the second issue depends on whether the Respondent’s cause of action is in tort or contract. This is because, the same set of facts may yield difference causes of action for a claimant and it is the duty of the claimant to elect which cause of action it wishes to pursue and plead it accordingly. The difference between the law of tort of contract is not merely academic but of real and practical significance. A case grounded on tort is founded on a general duty of care imposed by the law while a case for breach of contract arises from the agreement between the parties (see A. G. Guest, “Tort of Contract” [1961] 3 University of Malaya Law Review 191).
I reiterate that a party who wishes to pursue its case, must therefore elect the cause of action it wishes pursue and plead its case accordingly. This is what the court stated in Reuben Kioko Mutyane v Kenya Commercial Bank; Transunion t/a Credit Reference Bureau Africa Limited (Interested Party) (Supra) that, ‘’That duty of care may also arise both in, contract and tort. It is therefore upon the customer to elect to pursue one or both, taking into account issues of Limitation periods and rules as to remoteness of damages…. ‘’.
38. The upshot is that the appeal herein is devoid of merit. It is dismissed with costs to the 1st respondent. It is noted that the 2nd respondent did not participate in this appeal.
It is so ordered.
DATED, SIGNED and DELIVERED at NAIROBI on this 1st day of December, 2023. Judgment delivered through Microsoft Teams Online Platform.
NJOKI MWANGI
JUDGE
In the presence of:
Ms Dida h/b for Mr. Mutiso for the appellant
No appearance for the 1st respondent
No appearance for the 2nd respondent
Ms B. Wokabi – Court Assistant.