Introduction and Background
1. The 1st and 2nd plaintiffs are related business entities involved in construction and real estate projects. They were, at all material times to this suit, in a bank-customer relationship with the defendant bank. The 1st plaintiff operated account number 021007000388, while the 2nd plaintiff held account number 021007000389, both accounts being maintained with the Bank for business purposes.
2. In order to finance their joint ventures, the plaintiffs secured credit facilities from financial institutions and service providers, with the intention of repaying the same from proceeds realized upon completion and sale of the developed properties. According to them, the funds at the center of this dispute were specifically earmarked to service these obligations, including payments to contractors, suppliers, and lenders.
3. The plaintiffs commenced this suit by a Plaint dated 11th July 2018, seeking special damages in the sum of Kshs. 1,679,646,269/=, general damages for breach of contract, interest, and costs, arising from the alleged breach of the bank-customer relationship by the Bank.
4. The plaintiffs’ claim arises from events following the receipt of Kshs. 293,393,146/= by the 1st plaintiff on 10th May 2018 from Nairobi City County (NCC), through the Central Bank of Kenya (CBK). The payment was made in satisfaction of a decree issued on 14th March 2018 in High Court Civil Case No. 32 of 2017. Upon receipt of the funds, the 1st plaintiff instructed the Bank to transfer Kshs. 249 million to its account at Diamond Trust Bank, Oval Branch; Kshs. 30 million to its account at DTB Capital Centre Branch; and Kshs. 20 million to its account at Kenya Commercial Bank, Kipande House Branch.
5. While the transfers of Kshs. 30 million and Kshs. 20 million were effected, the instruction to transfer Kshs. 249 million was not. On 12th May 2018, the 1st plaintiff issued revised instructions, directing that the sum of Kshs. 249 million to be transferred internally to the 2nd plaintiff’s account held at the same Bank. This instruction was promptly executed.
6. Thereafter, the plaintiffs issued multiple payment instructions to the Bank, in respect of the Kshs. 249 million. It is their case that despite numerous follow-ups and verbal assurances from the Bank’s officers, the defendant failed and/or refused to act on these instructions.
7. The plaintiffs contend that the withheld funds were earmarked for servicing loan facilities, paying contractors and suppliers, and financing ongoing construction works. They allege that the Bank’s failure to act on the duly issued and acknowledged instructions caused substantial delays in project implementation and exposed them to default interest, reputational damage, and loss of business opportunities. The plaintiffs assert that the Bank’s conduct amounted to both negligence and breach of contract, and they claim a total loss of Kshs. 1,679,646,269/=. In its Statement of Defence dated 7th August 2018, the Bank admitted that a sum of Kshs. 293,393,146/= was credited to the 1st plaintiff’s account on 10th May 2018 through the CBK. However, it denied having knowledge of the court decree referenced by the plaintiffs at the material time. The Bank acknowledges receipt of the plaintiffs’ transfer instructions on 11th May but asserts that the same were received after the cut-off time for processing same-day interbank transactions.
8. The Bank further contended that, at the time the funds were credited, the 1st plaintiff’s account was already overdrawn by Kshs. 591,561,680.30, and that the credited amount merely reduced this outstanding liability. As of 31st July 2018, the account was allegedly still overdrawn in the sum of Kshs. 610,450,855.71, with interest continuing to accrue at the agreed contractual rate. According to the Bank, the plaintiffs were facing financial distress and had instituted the suit as a tactic to forestall or frustrate its efforts to enforce securities, including the exercise of its statutory power of sale.
9. The Bank also confirmed that on 11th May 2018, the 1st plaintiff issued instructions for external transfers of Kshs. 249 million, Kshs. 30 million, and Kshs. 20 million. However, these instructions were later revoked and replaced with new directives issued on 12th May 2018, wherein the 1st plaintiff instructed that the Kshs. 249 million be transferred internally to the 2nd plaintiff’s account. The Bank processed the other two transfers on 14th May 2018. It therefore contended that the allegation that it ignored the Kshs. 249 million transfer instruction was misleading, as the initial directive had been validly superseded.
10. The Bank further stated that on 14th May 2018, before the completion of all disbursements, it received a letter from NCC asserting that the payment of Kshs. 293 million to the 1st plaintiff had been made in error. In response, the Bank sought clarification from CBK, which advised that the status quo be maintained and that due diligence be undertaken before effecting any further disbursements. Acting on this guidance, the Bank engaged both NCC and the plaintiffs. NCC reiterated its position that the payment was unauthorized and demanded reversal of the funds.
11. The Bank maintained that it was compelled to suspend further transactions due to mounting pressure and threats from NCC, which were followed by a court order freezing the account. It emphasized that it subsequently acted in compliance with a Consent Order dated 26th June 2018, which lifted the freezing orders, and thereafter effected internal transfers of Kshs. 150 million and Kshs. 99 million to the 2nd plaintiff.
12. The Bank further argued that none of the transfer instructions expressly indicated that the funds were intended for third-party payments. It denied unlawfully withholding any funds and maintained that its actions were lawful, having been guided by CBK directives and valid court orders. It rejected the allegations of illegality, negligence, and breach of contract, asserting that the plaintiffs had misrepresented the facts in an effort to obstruct its legitimate loan recovery efforts.
13. In their reply dated 22nd August 2018, the plaintiffs denied issuing instructions outside the interbank cut-off time and further denied that their accounts were overdrawn. While they acknowledged that the internal transfer of Kshs. 249 million was eventually effected, they contended that this was only done belatedly and out of frustration after the Bank initially failed to act on their instructions. The plaintiffs accused the Bank of giving undue priority to threats from NCC and the CBK, at the expense of a valid court decree, and of attempting to impose a credit facility upon them in lieu of releasing their own funds.
14. At the hearing, the plaintiffs called two witnesses: Zesun Yang, the Managing Director of the plaintiff companies and Kingori Kabuya, an auditor instructed by the plaintiffs to prepare a loss analysis report. The Bank called one witness, Francis Wainaina, who was the head of the legal department. The substance of their testimonies largely mirror the parties’ respective pleadings and positions as already outlined. Accordingly, I will not reproduce their evidence in detail but will refer to the relevant portions as necessary in the analysis that follows.
Analysis and Determination
15. The nature of the bank-customer relationship is well settled in law. It is both fiduciary and contractual, thereby imposing duties of good faith, honesty, and reasonable care on the part of the Bank in handling its customer’s affairs. This legal position has been affirmed in decisions such as Eunice Wairimu Muturi & Another V James Maina Thuku & Another, [2018] eKLR and Equity Bank of Kenya & Another V Robert Chesang, [2016] eKLR.
16. The Court of Appeal decision in Equity Bank (Kenya) Ltd V Don Ogalloh Riaro & Another, [2019] KECA 317 (KLR) is particularly instructive. The appellate court affirmed that banks have a duty of care to their customers and in some circumstances, to third parties, particularly where funds may be the subject of fraud or regulatory concern. The Court cited the Supreme Court of the Netherlands in MeesPierson/Ten Bos (1998), which held that banks must, under certain circumstances, investigate suspicious transactions and act to prevent regulatory breaches.
17. In that decision, the Learned Judges of the Court of Appeal upheld the findings of this Court and reaffirmed a passage cited from the Canadian case of Vitalaire (A General Partnership) V Bank of Nova Scotia, [2002] OJ No. 4902 (SCJ), where it was held that a bank which has reasonable grounds to suspect its customer’s fraudulent conduct may be held liable to a non-customer if it fails to undertake reasonable inquiries to detect or prevent the fraud.
18. The Court of Appeal also referred to the decision in Dupont Heating & Air Conditioning Limited V Bank of Montreal (2009) Can LII 2906 (ON SC), where the Ontario Superior Court of Justice recognized that a bank may, in certain circumstances, owe a duty of care to third parties adversely affected by the fraudulent acts of its customer. The Court of Appeal noted that:
“Central to the issue of liability of the appellant Bank is the role and place of CBK Prudential Guidelines. The Prudential Guidelines place a duty on all licensed banks to make enquiries regarding the legitimacy of funds and transactions. The Guidelines require that a bank should make enquiries on a case by case basis for large, frequent or unusual transfers in relation to the parties and the nature of the transaction…We are further persuaded by the comparative decision of the Supreme Court of the Netherlands where it was held that banks have a special duty of care not only to their clients but also to third parties; that the duty owed to a third party depends on the circumstances of each case; that under certain circumstances banks will be acting unlawfully if they fail to investigate whether the client is acting in accordance with regulatory legislation. … It was further held that if a bank’s investigation shows that the client has acted in violation of regulatory legislation it will, in principle, need to take steps to protect the interests of third parties; that the measures which are appropriate in any specific case will depend on the circumstances of that case.
In this context, we are comforted by the persuasive dicta in Shalimar Flowers Self Help Group -v- Kenya Commercial Bank [2016] eKLR where it was stated. … All the red flags were waving in this case in my view but the Defendant by not exercising reasonable care and skill, missed or ignored them, thereby allowing the withdrawal, in quick succession, of large sums of money donated to flower workers as commissions. I find on a balance of probability that the Defendant bank was negligent in the manner in which it handled and approved the nine payments and is 100% liable.”
19. I now turn to consider the issues for determination against the foregoing jurisprudential framework. I have carefully evaluated the pleadings, the evidence adduced, and the submissions presented by both parties. In my view, the following issues arise for determination:
a) Whether the defendant Bank breached the bank-customer relationship by failing to execute the plaintiffs’ transfer instructions;
b) Whether the plaintiffs are entitled to special damages in the sum of Kshs. 1,679,646,269.
Whether the bank breached the bank-customer relationship:
20. It is not in dispute that the plaintiffs were customers of the Bank, thereby giving rise to a contractual and fiduciary relationship between the parties. The crux of the plaintiffs’ case, as set out in the Plaint and their written submissions, is that the Bank was well aware of the nature of their business and the purposes for which the funds held in their accounts were intended to be applied. The plaintiffs contend that the Bank unjustifiably and irregularly failed to honour valid and duly issued instructions, thereby occasioning them significant prejudice, disruption to their business operations, and substantial financial loss.
21. It is equally not in dispute that on 10th May 2018, the 1st plaintiff’s account was credited with a sum of Kshs. 293,393,146/=. On the same day, the 1st plaintiff issued transfer instructions, which are acknowledged to have been received by the Bank on 11th May 2018. The instructions directed the transfer of Kshs. 249 million, Kshs. 30 million, and Kshs. 20 million to separate accounts. The plaintiffs’ grievance does not concern the latter two transfers, but rather centers on the Bank’s alleged failure and/or refusal to execute the instruction to transfer Kshs. 249 million to third-party accounts.
22. The chronology of events surrounding the sum of Kshs. 249 million is critical. Upon reviewing the documentary evidence and witness testimonies, it is evident that the RTGS/TT form dated 10th May 2018 and received by the Bank on 11th May 2018 contained instructions from the 1st plaintiff to transfer the funds to its account at Diamond Trust Bank, Oval Branch.
23. The Bank’s witness testified that the instructions were received at 4pm, as per the RTGS receipt stamp. This was outside the cut-off time for interbank transfers and could not be processed on 11th May 2018, being a Friday. According to the Bank, the earliest the instructions could have been effected was Monday, 14th May 2018.
24. However, what is equally clear is that before the said instructions could be executed on 14th May 2018, the 1st plaintiff issued revised instructions on Saturday 12th May 2018, cancelling the external transfer and directing that the funds be transferred internally to the 2nd plaintiff’s account. This internal transfer was promptly executed by the Bank, as confirmed at paragraph 9 of the Plaint and the testimony of PW1. DW1 confirmed that this was feasible as the internal account to account transfer did not require processing through RTGS, unlike the earlier instruction issued on 11th May. Once the funds were in the 2nd plaintiff’s account, the 1st plaintiff issued instructions to the Bank to transfer the funds to various parties.
25. The events that unfolded from Monday, 14th May 2018 form the genesis of the present dispute. It is therefore necessary to revisit the chronology of those events in order to determine whether the Bank acted in breach of the plaintiffs’ instructions and, if so, whether such conduct gave rise to liability.
26. On 14th May 2018, and before the plaintiffs’ earlier instructions had been executed, several significant events occurred, as borne out by the evidence on record. First, the Bank received a letter from NCC, signed by the Head of County Treasury and the Acting Chief Finance Officer. The letter stated, in part:
“We hereby request a recall of the sum of Kshs. 293,393,146/= … erroneously transferred to Edermann Property Limited … The amount was transferred on 10th May 2018 from the NCC recurrent account … at the Central Bank of Kenya.”
27. On the same date, the Bank also received a SWIFT message from CBK, urging it to "kindly but urgently expedite return of funds to the Nairobi City County recurrent account." Further, a letter addressed to the Bank’s Corporate Banking Manager by the 1st plaintiff confirms that a meeting took place on that date between the Bank and the plaintiffs, in which the parties discussed the emerging standoff concerning the disputed funds.
28. On the following day, 15th May 2018, the 1st plaintiff wrote to the Bank questioning its decision to initiate a recall of the funds and seeking clarification on the role of the CBK once a payment had already been credited to its account. The letter, which was received by the Bank on 16th May 2018, cited Section 9(2) of the National Payment System Act, No. 39 of 2011 in support of its position.
29. Subsequently, the plaintiffs, through their advocates, M/s Zed Machoki & Company Advocates, wrote directly to the CBK. This appears to be the first communication on record in which the plaintiffs confirmed the source of the funds and furnished the CBK with copies of the judgment and decree issued by this Court on 3rd April 2018, in an effort to demonstrate that the funds were lawfully due. The letter was copied to the Bank and was received on the same day.
30. On 18th May 2018, the plaintiffs’ advocates wrote a further letter to the Bank, enclosing the court order and decree. This was intended to assist the Bank in making an informed decision, particularly in light of the CBK’s directive issued the same day, which required the Bank to conduct enhanced due diligence before releasing the disputed funds to either party.
31. In my view, the events that unfolded between 14th and 18th May 2018 placed the Bank in a uniquely delicate position, caught between its contractual and fiduciary obligations to its customer and the competing demands of a third party, coupled with intervention from its regulator. On the one hand, the Bank was duty-bound to act on the plaintiffs’ payment instructions in good faith; on the other, it was confronted with an official demand seeking to recall a substantial sum of funds alleged to have been transferred in error, and a simultaneous directive from CBK urging caution and the immediate return of the funds.
32. The plaintiffs relied on Section 9(2) of the National Payment System Act to argue that, once credited, their payment instructions were irrevocable. While this provision reinforces the finality of customer instructions to payment service providers, it does not impose an absolute obligation that nullifies the Bank’s duty to exercise caution in the face of legitimate third-party claims or regulatory intervention.
33. The provision must be interpreted within the broader statutory and regulatory context, including the Central Bank of Kenya Act, the Banking Act, and the general principles of fiduciary responsibility that govern the bank-customer relationship.
34. In light of this emerging dispute, I find the Bank’s response, namely, to suspend disbursement pending clarification, not only understandable but justified. The situation presented a genuine and imminent risk of liability on multiple fronts: to its customer for failing to act on instructions, and to a third party for potential misapplication of resources. As supported by the jurisprudence earlier discussed, it was incumbent upon the Bank to exercise measured restraint and undertake enhanced due diligence before releasing the funds.
35. In the circumstances, I find that the temporary withholding of disbursement was both prudent and necessary, and reflected a careful balance between legal compliance, regulatory guidance, and risk management. Guided by the reasoning in Equity Bank (Kenya) Limited V Don Ogalloh Riaro & Another, [2020] eKLR, I am not persuaded that the Bank acted negligently. That case underscores the principle that a bank must balance its duty to its customer with its obligation to act prudently when third-party claims or suspected irregularities arise.
36. The evidence before me demonstrates that it was not until 18th May 2018 that the Bank was furnished with the requisite court documents, including a consent judgment and a decree issued in High Court Civil Case No. 32 of 2017, which confirmed the plaintiffs’ lawful entitlement to the funds in question. At this juncture, the legal and factual context materially changed. The Bank now had in its possession a binding court order and confirmation of the plaintiffs’ claim, together with regulatory clearance to proceed. Notably, the authenticity of the court orders was never challenged by NCC.
37. From this moment onward, the Bank’s fiduciary and contractual obligations to its customer reasserted themselves with renewed clarity. In the absence of any court order for restraint or competing legal claim and a go ahead from the CBK to finalize the matter promptly, the Bank was duty-bound to act on the plaintiffs’ instructions.
38. Any continued withholding of the funds beyond this point lacked legal justification and constituted a breach of duty and ran afoul of the principle that once a bank is put on notice of the legitimacy of a transaction, it must act diligently to safeguard the customer’s interest.
39. Accordingly, I find that while the Bank was not negligent in its handling of the funds up to and including 18th May 2018, it failed in its contractual and fiduciary duties thereafter by unreasonably withholding disbursement in the absence of a legal restraint. This inaction constitutes a breach of the bank-customer relationship.
40. The Bank sought to justify its inaction by citing alleged irregularities in the signing instructions, as raised by NCC. However, these allegations were unsupported by evidence or court proceedings and could not override a valid court decree. As affirmed in Teachers Service Commission V Kenya National Union of Teachers & 2 Others, [2013] KEELRC 656 (KLR), court orders must be obeyed as long as they are in force, irrespective of extrajudicial concerns.
41. The Bank sought to further rely on a freezing order issued on 29th May 2018. This is similarly unpersuasive. The freezing order came well after the Bank ought to have released the funds, and it cannot be invoked to retroactively justify the prior failure to act. The window between 18th and 29th May 2018 presented a clear opportunity for the Bank to fulfil its obligations, an opportunity it failed to take.
42. Finally, the Bank’s assertion that the present suit was filed to frustrate the recovery of an outstanding facility is unsupported. No evidentiary linkage was established between the two transactions, and no material was placed before the Court to suggest bad faith on the part of the plaintiffs in bringing this claim.
Whether the plaintiffs are entitled to special damages:
43. The plaintiffs claim special damages in the sum of Kshs. 1,679,646,269/=. They allege that this figure represents quantified losses suffered as a direct result of the Bank’s failure to timeously execute their payment instructions. According to the plaintiffs, the losses included delayed project completion, exposure to default interest, reputational damage, loss of goodwill, and professional and legal expenses incurred in addressing the consequences of the Bank’s inaction. In support of this claim, the plaintiffs relied on an expert report prepared and produced in evidence by PW2.
44. PW2 testified that in compiling the report, he reviewed bank statements showing the deposit of funds, valuation reports, and bills of quantities (BQs) purportedly relating to units under construction. However, he candidly confirmed that none of these documents were annexed to his report. Of particular note is that PW2 stated he relied on the number of unsold units, said to be 299, based on a master plan, yet the said master plan was not produced in evidence to verify this figure. No detailed schedules, audited accounts, construction progress reports, or sales projections were presented to substantiate the computation of alleged profit loss.
45. Additionally, no specific or verifiable evidence was produced to support the claims relating to loss of goodwill or reputational damage. The plaintiffs did not demonstrate any contractual defaults, customer complaints, or legal claims arising from the alleged delay. The purported interest losses on outstanding loan facilities were similarly unsupported. There was no evidence of the existence, terms, or performance of such facilities. Equally, the claim for professional and legal expenses was not backed by proof of payment or contractual obligation. PW2 conceded under cross-examination that he could not verify whether such costs had in fact been incurred.
46. It is trite law that special damages must not only be specifically pleaded but strictly proved with credible and cogent evidence. As was held in Hahn V Singh, [1985] KLR 716 and reaffirmed in Abok James Odera T/A A.J Odera & Associates V John Patrick Machira T/A Machira & Co Advocates [2013] KECA 208 (KLR), a party claiming special damages bears the burden of demonstrating the actual loss incurred through documentary or other reliable proof. In the present case, the evidentiary threshold required to sustain an award of special damages has not been met. The plaintiffs’ claim rests largely on unverified assumptions and unsupported figures, and the Court is unable to ascertain the alleged losses with the precision the law demands.
47. That said, I am persuaded by the plaintiffs’ submission that they are entitled to compensation for the unjustified loss of use of their funds for the period between 18th May 2018 and 25th June 2018 noting that the funds were eventually paid on 26th June 2018. It is well-established that denial of access to one's funds without lawful justification entitles the party aggrieved to compensatory interest to reflect the time value of money.
48. PW2 testified that the prevailing commercial lending rate at the material time was approximately 13.5%. Although no formal notice or bulletin from the CBK was produced to corroborate this figure, the Bank did not dispute the rate as being reflective of the interest generally payable on deposits during that period. In the absence of contrary evidence and given that the figure was supported by expert testimony and not challenged in cross-examination, I am satisfied that the rate of 13.5% per annum is reasonable in the circumstances.
Final Orders
1. Judgment be and is hereby entered in favour of the plaintiffs against the defendant for:
a) Interest at the rate of 13.5% per annum on the sum of Kshs. 249,000,000/=, being compensation for loss of use of funds for the period between 19th May 2018 and 25th June 2018, both days inclusive;
b) General damages in the sum of Kshs. 5,000,000/=.
c) The sums awarded in (1)(a) and (1)(b) above shall accrue interest at commercial rates from 18th May 2018 until payment in full.
2. The plaintiffs shall have the costs of the suit.
It is so ordered.
DATED, SIGNED AND DELIVERED IN NAIROBI
THIS 18TH DAY OF JULY 2025.
F. MUGAMBI
JUDGE
1. The 1st and 2nd plaintiffs are related business entities involved in construction and real estate projects. They were, at all material times to this suit, in a bank-customer relationship with the defendant bank. The 1st plaintiff operated account number 021007000388, while the 2nd plaintiff held account number 021007000389, both accounts being maintained with the Bank for business purposes.
2. In order to finance their joint ventures, the plaintiffs secured credit facilities from financial institutions and service providers, with the intention of repaying the same from proceeds realized upon completion and sale of the developed properties. According to them, the funds at the center of this dispute were specifically earmarked to service these obligations, including payments to contractors, suppliers, and lenders.
3. The plaintiffs commenced this suit by a Plaint dated 11th July 2018, seeking special damages in the sum of Kshs. 1,679,646,269/=, general damages for breach of contract, interest, and costs, arising from the alleged breach of the bank-customer relationship by the Bank.
4. The plaintiffs’ claim arises from events following the receipt of Kshs. 293,393,146/= by the 1st plaintiff on 10th May 2018 from Nairobi City County (NCC), through the Central Bank of Kenya (CBK). The payment was made in satisfaction of a decree issued on 14th March 2018 in High Court Civil Case No. 32 of 2017. Upon receipt of the funds, the 1st plaintiff instructed the Bank to transfer Kshs. 249 million to its account at Diamond Trust Bank, Oval Branch; Kshs. 30 million to its account at DTB Capital Centre Branch; and Kshs. 20 million to its account at Kenya Commercial Bank, Kipande House Branch.
5. While the transfers of Kshs. 30 million and Kshs. 20 million were effected, the instruction to transfer Kshs. 249 million was not. On 12th May 2018, the 1st plaintiff issued revised instructions, directing that the sum of Kshs. 249 million to be transferred internally to the 2nd plaintiff’s account held at the same Bank. This instruction was promptly executed.
6. Thereafter, the plaintiffs issued multiple payment instructions to the Bank, in respect of the Kshs. 249 million. It is their case that despite numerous follow-ups and verbal assurances from the Bank’s officers, the defendant failed and/or refused to act on these instructions.
7. The plaintiffs contend that the withheld funds were earmarked for servicing loan facilities, paying contractors and suppliers, and financing ongoing construction works. They allege that the Bank’s failure to act on the duly issued and acknowledged instructions caused substantial delays in project implementation and exposed them to default interest, reputational damage, and loss of business opportunities. The plaintiffs assert that the Bank’s conduct amounted to both negligence and breach of contract, and they claim a total loss of Kshs. 1,679,646,269/=. In its Statement of Defence dated 7th August 2018, the Bank admitted that a sum of Kshs. 293,393,146/= was credited to the 1st plaintiff’s account on 10th May 2018 through the CBK. However, it denied having knowledge of the court decree referenced by the plaintiffs at the material time. The Bank acknowledges receipt of the plaintiffs’ transfer instructions on 11th May but asserts that the same were received after the cut-off time for processing same-day interbank transactions.
8. The Bank further contended that, at the time the funds were credited, the 1st plaintiff’s account was already overdrawn by Kshs. 591,561,680.30, and that the credited amount merely reduced this outstanding liability. As of 31st July 2018, the account was allegedly still overdrawn in the sum of Kshs. 610,450,855.71, with interest continuing to accrue at the agreed contractual rate. According to the Bank, the plaintiffs were facing financial distress and had instituted the suit as a tactic to forestall or frustrate its efforts to enforce securities, including the exercise of its statutory power of sale.
9. The Bank also confirmed that on 11th May 2018, the 1st plaintiff issued instructions for external transfers of Kshs. 249 million, Kshs. 30 million, and Kshs. 20 million. However, these instructions were later revoked and replaced with new directives issued on 12th May 2018, wherein the 1st plaintiff instructed that the Kshs. 249 million be transferred internally to the 2nd plaintiff’s account. The Bank processed the other two transfers on 14th May 2018. It therefore contended that the allegation that it ignored the Kshs. 249 million transfer instruction was misleading, as the initial directive had been validly superseded.
10. The Bank further stated that on 14th May 2018, before the completion of all disbursements, it received a letter from NCC asserting that the payment of Kshs. 293 million to the 1st plaintiff had been made in error. In response, the Bank sought clarification from CBK, which advised that the status quo be maintained and that due diligence be undertaken before effecting any further disbursements. Acting on this guidance, the Bank engaged both NCC and the plaintiffs. NCC reiterated its position that the payment was unauthorized and demanded reversal of the funds.
11. The Bank maintained that it was compelled to suspend further transactions due to mounting pressure and threats from NCC, which were followed by a court order freezing the account. It emphasized that it subsequently acted in compliance with a Consent Order dated 26th June 2018, which lifted the freezing orders, and thereafter effected internal transfers of Kshs. 150 million and Kshs. 99 million to the 2nd plaintiff.
12. The Bank further argued that none of the transfer instructions expressly indicated that the funds were intended for third-party payments. It denied unlawfully withholding any funds and maintained that its actions were lawful, having been guided by CBK directives and valid court orders. It rejected the allegations of illegality, negligence, and breach of contract, asserting that the plaintiffs had misrepresented the facts in an effort to obstruct its legitimate loan recovery efforts.
13. In their reply dated 22nd August 2018, the plaintiffs denied issuing instructions outside the interbank cut-off time and further denied that their accounts were overdrawn. While they acknowledged that the internal transfer of Kshs. 249 million was eventually effected, they contended that this was only done belatedly and out of frustration after the Bank initially failed to act on their instructions. The plaintiffs accused the Bank of giving undue priority to threats from NCC and the CBK, at the expense of a valid court decree, and of attempting to impose a credit facility upon them in lieu of releasing their own funds.
14. At the hearing, the plaintiffs called two witnesses: Zesun Yang, the Managing Director of the plaintiff companies and Kingori Kabuya, an auditor instructed by the plaintiffs to prepare a loss analysis report. The Bank called one witness, Francis Wainaina, who was the head of the legal department. The substance of their testimonies largely mirror the parties’ respective pleadings and positions as already outlined. Accordingly, I will not reproduce their evidence in detail but will refer to the relevant portions as necessary in the analysis that follows.
Analysis and Determination
15. The nature of the bank-customer relationship is well settled in law. It is both fiduciary and contractual, thereby imposing duties of good faith, honesty, and reasonable care on the part of the Bank in handling its customer’s affairs. This legal position has been affirmed in decisions such as Eunice Wairimu Muturi & Another V James Maina Thuku & Another, [2018] eKLR and Equity Bank of Kenya & Another V Robert Chesang, [2016] eKLR.
16. The Court of Appeal decision in Equity Bank (Kenya) Ltd V Don Ogalloh Riaro & Another, [2019] KECA 317 (KLR) is particularly instructive. The appellate court affirmed that banks have a duty of care to their customers and in some circumstances, to third parties, particularly where funds may be the subject of fraud or regulatory concern. The Court cited the Supreme Court of the Netherlands in MeesPierson/Ten Bos (1998), which held that banks must, under certain circumstances, investigate suspicious transactions and act to prevent regulatory breaches.
17. In that decision, the Learned Judges of the Court of Appeal upheld the findings of this Court and reaffirmed a passage cited from the Canadian case of Vitalaire (A General Partnership) V Bank of Nova Scotia, [2002] OJ No. 4902 (SCJ), where it was held that a bank which has reasonable grounds to suspect its customer’s fraudulent conduct may be held liable to a non-customer if it fails to undertake reasonable inquiries to detect or prevent the fraud.
18. The Court of Appeal also referred to the decision in Dupont Heating & Air Conditioning Limited V Bank of Montreal (2009) Can LII 2906 (ON SC), where the Ontario Superior Court of Justice recognized that a bank may, in certain circumstances, owe a duty of care to third parties adversely affected by the fraudulent acts of its customer. The Court of Appeal noted that:
“Central to the issue of liability of the appellant Bank is the role and place of CBK Prudential Guidelines. The Prudential Guidelines place a duty on all licensed banks to make enquiries regarding the legitimacy of funds and transactions. The Guidelines require that a bank should make enquiries on a case by case basis for large, frequent or unusual transfers in relation to the parties and the nature of the transaction…We are further persuaded by the comparative decision of the Supreme Court of the Netherlands where it was held that banks have a special duty of care not only to their clients but also to third parties; that the duty owed to a third party depends on the circumstances of each case; that under certain circumstances banks will be acting unlawfully if they fail to investigate whether the client is acting in accordance with regulatory legislation. … It was further held that if a bank’s investigation shows that the client has acted in violation of regulatory legislation it will, in principle, need to take steps to protect the interests of third parties; that the measures which are appropriate in any specific case will depend on the circumstances of that case.
In this context, we are comforted by the persuasive dicta in Shalimar Flowers Self Help Group -v- Kenya Commercial Bank [2016] eKLR where it was stated. … All the red flags were waving in this case in my view but the Defendant by not exercising reasonable care and skill, missed or ignored them, thereby allowing the withdrawal, in quick succession, of large sums of money donated to flower workers as commissions. I find on a balance of probability that the Defendant bank was negligent in the manner in which it handled and approved the nine payments and is 100% liable.”
19. I now turn to consider the issues for determination against the foregoing jurisprudential framework. I have carefully evaluated the pleadings, the evidence adduced, and the submissions presented by both parties. In my view, the following issues arise for determination:
a) Whether the defendant Bank breached the bank-customer relationship by failing to execute the plaintiffs’ transfer instructions;
b) Whether the plaintiffs are entitled to special damages in the sum of Kshs. 1,679,646,269.
Whether the bank breached the bank-customer relationship:
20. It is not in dispute that the plaintiffs were customers of the Bank, thereby giving rise to a contractual and fiduciary relationship between the parties. The crux of the plaintiffs’ case, as set out in the Plaint and their written submissions, is that the Bank was well aware of the nature of their business and the purposes for which the funds held in their accounts were intended to be applied. The plaintiffs contend that the Bank unjustifiably and irregularly failed to honour valid and duly issued instructions, thereby occasioning them significant prejudice, disruption to their business operations, and substantial financial loss.
21. It is equally not in dispute that on 10th May 2018, the 1st plaintiff’s account was credited with a sum of Kshs. 293,393,146/=. On the same day, the 1st plaintiff issued transfer instructions, which are acknowledged to have been received by the Bank on 11th May 2018. The instructions directed the transfer of Kshs. 249 million, Kshs. 30 million, and Kshs. 20 million to separate accounts. The plaintiffs’ grievance does not concern the latter two transfers, but rather centers on the Bank’s alleged failure and/or refusal to execute the instruction to transfer Kshs. 249 million to third-party accounts.
22. The chronology of events surrounding the sum of Kshs. 249 million is critical. Upon reviewing the documentary evidence and witness testimonies, it is evident that the RTGS/TT form dated 10th May 2018 and received by the Bank on 11th May 2018 contained instructions from the 1st plaintiff to transfer the funds to its account at Diamond Trust Bank, Oval Branch.
23. The Bank’s witness testified that the instructions were received at 4pm, as per the RTGS receipt stamp. This was outside the cut-off time for interbank transfers and could not be processed on 11th May 2018, being a Friday. According to the Bank, the earliest the instructions could have been effected was Monday, 14th May 2018.
24. However, what is equally clear is that before the said instructions could be executed on 14th May 2018, the 1st plaintiff issued revised instructions on Saturday 12th May 2018, cancelling the external transfer and directing that the funds be transferred internally to the 2nd plaintiff’s account. This internal transfer was promptly executed by the Bank, as confirmed at paragraph 9 of the Plaint and the testimony of PW1. DW1 confirmed that this was feasible as the internal account to account transfer did not require processing through RTGS, unlike the earlier instruction issued on 11th May. Once the funds were in the 2nd plaintiff’s account, the 1st plaintiff issued instructions to the Bank to transfer the funds to various parties.
25. The events that unfolded from Monday, 14th May 2018 form the genesis of the present dispute. It is therefore necessary to revisit the chronology of those events in order to determine whether the Bank acted in breach of the plaintiffs’ instructions and, if so, whether such conduct gave rise to liability.
26. On 14th May 2018, and before the plaintiffs’ earlier instructions had been executed, several significant events occurred, as borne out by the evidence on record. First, the Bank received a letter from NCC, signed by the Head of County Treasury and the Acting Chief Finance Officer. The letter stated, in part:
“We hereby request a recall of the sum of Kshs. 293,393,146/= … erroneously transferred to Edermann Property Limited … The amount was transferred on 10th May 2018 from the NCC recurrent account … at the Central Bank of Kenya.”
27. On the same date, the Bank also received a SWIFT message from CBK, urging it to "kindly but urgently expedite return of funds to the Nairobi City County recurrent account." Further, a letter addressed to the Bank’s Corporate Banking Manager by the 1st plaintiff confirms that a meeting took place on that date between the Bank and the plaintiffs, in which the parties discussed the emerging standoff concerning the disputed funds.
28. On the following day, 15th May 2018, the 1st plaintiff wrote to the Bank questioning its decision to initiate a recall of the funds and seeking clarification on the role of the CBK once a payment had already been credited to its account. The letter, which was received by the Bank on 16th May 2018, cited Section 9(2) of the National Payment System Act, No. 39 of 2011 in support of its position.
29. Subsequently, the plaintiffs, through their advocates, M/s Zed Machoki & Company Advocates, wrote directly to the CBK. This appears to be the first communication on record in which the plaintiffs confirmed the source of the funds and furnished the CBK with copies of the judgment and decree issued by this Court on 3rd April 2018, in an effort to demonstrate that the funds were lawfully due. The letter was copied to the Bank and was received on the same day.
30. On 18th May 2018, the plaintiffs’ advocates wrote a further letter to the Bank, enclosing the court order and decree. This was intended to assist the Bank in making an informed decision, particularly in light of the CBK’s directive issued the same day, which required the Bank to conduct enhanced due diligence before releasing the disputed funds to either party.
31. In my view, the events that unfolded between 14th and 18th May 2018 placed the Bank in a uniquely delicate position, caught between its contractual and fiduciary obligations to its customer and the competing demands of a third party, coupled with intervention from its regulator. On the one hand, the Bank was duty-bound to act on the plaintiffs’ payment instructions in good faith; on the other, it was confronted with an official demand seeking to recall a substantial sum of funds alleged to have been transferred in error, and a simultaneous directive from CBK urging caution and the immediate return of the funds.
32. The plaintiffs relied on Section 9(2) of the National Payment System Act to argue that, once credited, their payment instructions were irrevocable. While this provision reinforces the finality of customer instructions to payment service providers, it does not impose an absolute obligation that nullifies the Bank’s duty to exercise caution in the face of legitimate third-party claims or regulatory intervention.
33. The provision must be interpreted within the broader statutory and regulatory context, including the Central Bank of Kenya Act, the Banking Act, and the general principles of fiduciary responsibility that govern the bank-customer relationship.
34. In light of this emerging dispute, I find the Bank’s response, namely, to suspend disbursement pending clarification, not only understandable but justified. The situation presented a genuine and imminent risk of liability on multiple fronts: to its customer for failing to act on instructions, and to a third party for potential misapplication of resources. As supported by the jurisprudence earlier discussed, it was incumbent upon the Bank to exercise measured restraint and undertake enhanced due diligence before releasing the funds.
35. In the circumstances, I find that the temporary withholding of disbursement was both prudent and necessary, and reflected a careful balance between legal compliance, regulatory guidance, and risk management. Guided by the reasoning in Equity Bank (Kenya) Limited V Don Ogalloh Riaro & Another, [2020] eKLR, I am not persuaded that the Bank acted negligently. That case underscores the principle that a bank must balance its duty to its customer with its obligation to act prudently when third-party claims or suspected irregularities arise.
36. The evidence before me demonstrates that it was not until 18th May 2018 that the Bank was furnished with the requisite court documents, including a consent judgment and a decree issued in High Court Civil Case No. 32 of 2017, which confirmed the plaintiffs’ lawful entitlement to the funds in question. At this juncture, the legal and factual context materially changed. The Bank now had in its possession a binding court order and confirmation of the plaintiffs’ claim, together with regulatory clearance to proceed. Notably, the authenticity of the court orders was never challenged by NCC.
37. From this moment onward, the Bank’s fiduciary and contractual obligations to its customer reasserted themselves with renewed clarity. In the absence of any court order for restraint or competing legal claim and a go ahead from the CBK to finalize the matter promptly, the Bank was duty-bound to act on the plaintiffs’ instructions.
38. Any continued withholding of the funds beyond this point lacked legal justification and constituted a breach of duty and ran afoul of the principle that once a bank is put on notice of the legitimacy of a transaction, it must act diligently to safeguard the customer’s interest.
39. Accordingly, I find that while the Bank was not negligent in its handling of the funds up to and including 18th May 2018, it failed in its contractual and fiduciary duties thereafter by unreasonably withholding disbursement in the absence of a legal restraint. This inaction constitutes a breach of the bank-customer relationship.
40. The Bank sought to justify its inaction by citing alleged irregularities in the signing instructions, as raised by NCC. However, these allegations were unsupported by evidence or court proceedings and could not override a valid court decree. As affirmed in Teachers Service Commission V Kenya National Union of Teachers & 2 Others, [2013] KEELRC 656 (KLR), court orders must be obeyed as long as they are in force, irrespective of extrajudicial concerns.
41. The Bank sought to further rely on a freezing order issued on 29th May 2018. This is similarly unpersuasive. The freezing order came well after the Bank ought to have released the funds, and it cannot be invoked to retroactively justify the prior failure to act. The window between 18th and 29th May 2018 presented a clear opportunity for the Bank to fulfil its obligations, an opportunity it failed to take.
42. Finally, the Bank’s assertion that the present suit was filed to frustrate the recovery of an outstanding facility is unsupported. No evidentiary linkage was established between the two transactions, and no material was placed before the Court to suggest bad faith on the part of the plaintiffs in bringing this claim.
Whether the plaintiffs are entitled to special damages:
43. The plaintiffs claim special damages in the sum of Kshs. 1,679,646,269/=. They allege that this figure represents quantified losses suffered as a direct result of the Bank’s failure to timeously execute their payment instructions. According to the plaintiffs, the losses included delayed project completion, exposure to default interest, reputational damage, loss of goodwill, and professional and legal expenses incurred in addressing the consequences of the Bank’s inaction. In support of this claim, the plaintiffs relied on an expert report prepared and produced in evidence by PW2.
44. PW2 testified that in compiling the report, he reviewed bank statements showing the deposit of funds, valuation reports, and bills of quantities (BQs) purportedly relating to units under construction. However, he candidly confirmed that none of these documents were annexed to his report. Of particular note is that PW2 stated he relied on the number of unsold units, said to be 299, based on a master plan, yet the said master plan was not produced in evidence to verify this figure. No detailed schedules, audited accounts, construction progress reports, or sales projections were presented to substantiate the computation of alleged profit loss.
45. Additionally, no specific or verifiable evidence was produced to support the claims relating to loss of goodwill or reputational damage. The plaintiffs did not demonstrate any contractual defaults, customer complaints, or legal claims arising from the alleged delay. The purported interest losses on outstanding loan facilities were similarly unsupported. There was no evidence of the existence, terms, or performance of such facilities. Equally, the claim for professional and legal expenses was not backed by proof of payment or contractual obligation. PW2 conceded under cross-examination that he could not verify whether such costs had in fact been incurred.
46. It is trite law that special damages must not only be specifically pleaded but strictly proved with credible and cogent evidence. As was held in Hahn V Singh, [1985] KLR 716 and reaffirmed in Abok James Odera T/A A.J Odera & Associates V John Patrick Machira T/A Machira & Co Advocates [2013] KECA 208 (KLR), a party claiming special damages bears the burden of demonstrating the actual loss incurred through documentary or other reliable proof. In the present case, the evidentiary threshold required to sustain an award of special damages has not been met. The plaintiffs’ claim rests largely on unverified assumptions and unsupported figures, and the Court is unable to ascertain the alleged losses with the precision the law demands.
47. That said, I am persuaded by the plaintiffs’ submission that they are entitled to compensation for the unjustified loss of use of their funds for the period between 18th May 2018 and 25th June 2018 noting that the funds were eventually paid on 26th June 2018. It is well-established that denial of access to one's funds without lawful justification entitles the party aggrieved to compensatory interest to reflect the time value of money.
48. PW2 testified that the prevailing commercial lending rate at the material time was approximately 13.5%. Although no formal notice or bulletin from the CBK was produced to corroborate this figure, the Bank did not dispute the rate as being reflective of the interest generally payable on deposits during that period. In the absence of contrary evidence and given that the figure was supported by expert testimony and not challenged in cross-examination, I am satisfied that the rate of 13.5% per annum is reasonable in the circumstances.
Final Orders
1. Judgment be and is hereby entered in favour of the plaintiffs against the defendant for:
a) Interest at the rate of 13.5% per annum on the sum of Kshs. 249,000,000/=, being compensation for loss of use of funds for the period between 19th May 2018 and 25th June 2018, both days inclusive;
b) General damages in the sum of Kshs. 5,000,000/=.
c) The sums awarded in (1)(a) and (1)(b) above shall accrue interest at commercial rates from 18th May 2018 until payment in full.
2. The plaintiffs shall have the costs of the suit.
It is so ordered.
DATED, SIGNED AND DELIVERED IN NAIROBI
THIS 18TH DAY OF JULY 2025.
F. MUGAMBI
JUDGE