JUDGMENT
1. This is a Judgement in respect of the Claim by the Plaintiffs against the Defendants herein.
The Plaintiffs’ Case
2. The Plaintiffs filed the Plaint dated 26th June 2020 and averred that on 13th March 2020, Kshs.176,588,395.60 was lawfully deposited into the 1st Plaintiff’s Escrow Client Account. This was following a Court decree issued in HCCC No. 329 of 2018. The 1st Plaintiff had acted as Counsel for the Plaintiff/Decree holder in that suit. Upon receipt of the funds, the 1st Plaintiff proceed to disburse them according to his client’s instructions and partly as legal fees earned.
3. In June 2020, a dispute arose over accounts and outstanding legal fees between the 1st Plaintiff and his client. This led to the client lodging a complaint with the Directorate of Criminal Investigations (DCI). The client alleged theft by agent against the 1st Plaintiff. This led to a Court order on 17th June 2020 freezing the escrow account.
4. The Plaintiffs aver that the freezing order was illegal and misrepresented. That the DCI and the 1st Defendant (the bank) had no authority to freeze the account without due process. Moreover, the bank, without notice or proper basis, extended the freezing order to all accounts held by the Plaintiffs. This is despite the Court order only referencing the single escrow account. This action, according to the Plaintiffs, was unjustified, malicious, and harmful to their business operations. This went on even after a DCI letter clarified that only one account was under investigation.
5. The Plaintiffs prayed for judgment against the Defendants for: -
a.) A declaration that the Defendant's unilateral action of freezing the Plaintiffs' bank accounts tabulated in Paragraph 7 above is manifestly illegal, oppressive, and without any legal or justifiable basis.
b.) An Order directing the Defendants to immediately unfreeze the Plaintiffs' bank accounts and to allow normal banking operations to resume forthwith and without any conditions whatsoever, namely: -
Name Account No. Branch
1. Kagwimi Kang'ethe 03801495661810 Eldama Park, Westlands
& Co. Advocates
(Client Account)
2. Kagwimi Kang'ethe 0380149565180 Eldama Park, Westlands
& Co. Advocates
(Office Account)
3. George Kagwimi 03801499272410 Eldama Park, Westlands
Kang'ethe
(Personal Account)
4. Joyce Waria 03801494942910 Eldama Park, Westlands
Njoroge
(Personal Account)
5. Tru-Flow Traders 02501574771810 Gigiri
Limited
(Current Account)
c.) A permanent injunction restraining the Defendants whether by themselves, officers, servants or agents from unlawfully freezing or interfering in any manner whatsoever with the Plaintiffs’ bank accounts.
d.) special damages under paragraph 23 of the Plaint to be tabulated and specified thereafter.
e.) Exemplary damages under paragraph 22 of the Plaint above to be assessed by the Court.
f.) Damages under paragraph 22 of the Plaint for inconvenience, embarrassment, annoyance, mental anguish to be assessed by the Court.
g.) Costs of the suit.
The Defendants’ Case
6. In contention, the 1st Defendant filed the statement of defence dated 11th December 2020. In response, the 1st Defendant stated that on 17th June 2020, the Bank was served with an order dated 17th June 2020 in Milimani Chief Magistrate Criminal Miscellaneous Civil Application No. 1483 of 2020. The Order compelled the Bank to freeze Account number 02501495651850 pending investigations by the 2nd Defendant, on an alleged offence of theft by Agent against the Plaintiffs.
7. On 27th June 2020, the Bank was served with another order dated 26th June 2020 in Milimani Chief Magistrate Criminal Miscellaneous Civil Application No. 231 of 2020. The Order compelled the Bank to freeze the following account numbers pending investigations by the 2nd Defendant, on an alleged offence of theft by Agent against the Plaintiffs:-
a) Account Number 02501495651850;
b) Account Number 03801495661810;
c) Account Number 03801499272410;
8. On the same date, the Bank was served with another order dated 26th June 2020 in Milimani Chief Magistrate Criminal Miscellaneous Civil Application No. 232 of 2020. The order compelled the Bank to freeze the following account numbers pending investigations by the 2nd Defendant on an alleged offence of theft by Agent against the Plaintiffs:-
a) Account Number 0250157477541200;
b) Account Number 0250157477541201;
c) Account Number 0250157477541202;
d) Account Number 0250149494541200;
e) Account Number 0250149494551200;
9. The 1st Defendant complied with the said orders in good faith, noting that disobedience of such an order would have been an act of contempt. This would have rendered them answerable to the Court as aiders and abettors.
10. Therefore, the Bank's actions were done according to the law and as per the general terms and conditions of the Bank. The Plaintiffs agreed to be bound to these conditions at the point of opening their respective accounts.
11. The 2nd Defendant filed its statement of defence dated 22nd January 2021. It denied the averments in the Plaint. It averred that it received a complaint from Africon Limited against the 1st Plaintiff. This was in relation to a matter previously handled by the 1st Plaintiff on behalf of Africon Limited.
12. It further averred that the order issued in Misc. Criminal Application No.1483 of 2020 was issued by the Chief Magistrate's Court upon full consideration of the application seeking the said order. That it was issued for the sole purpose of facilitating the investigation process commenced by the 2nd Defendant.
Evidence
13. PW1 GEORGE KAGWIMI KANGETHE adopted his witness statement as his evidence in chief and reiterated its content. He stated that a dispute arose pertaining to legal fees, and the Client (Africon Limited) made an allegation of theft to the 2nd Defendant. An order was issued directing the 1st Defendant to freeze only the escrow account, and he was never served. However, his other accounts were frozen for two weeks, and his business was at a standstill, as he had no access to the funds therein.
14. He added that the 2nd Defendant proceeded to obtain further orders, and in all those orders, the account numbers were wrong, yet the order was used to freeze the accounts. On cross-examination. PW1 averred that the orders issued in Misc. 231 of 2020 were illegal as they were obtained while the suit was pending, thus the Defendants were seeking to sanitize their actions. He also acknowledged that he received monies in the escrow account and paid himself his fees through his personal account, and that the client was aware.
15. PW2 JOYCE WARIA NJOROGE is the wife of the 1st Plaintiff. She testified that no one told her that her accounts had been frozen. That she only found out when her cards kept being declined. Further, that when she tried to withdraw money, the cheque was declined. On cross-examination, PW2 stated that she was unaware of the dispute between her husband and his client. That the bank did not inform her of the freezing of the Accounts. She acknowledged that monies were sent to her account by her husband. That this in itself was not suspicious, as it was usual for her husband to send her money.
16. DW1 RACHEL KARIUKI also adopted her witness statement as her testimony. On cross-examination, DW1 stated that the Bank received a Court order to freeze the escrow account. That there were other Court orders in Misc. 231 of 2020. The orders were issued after the accounts were frozen, and the bank did not notify the clients of the freezing of the accounts. DW1 confirmed that the Bank did not provide the account opening documents. The Bank froze 6 accounts on suspicions of fraud. There was no evidence that the client was involved in fraud. That the bank acted with due diligence and not with the intention of hurting their clients. They (the Bank) did not know who obtained the 2nd set of Court orders.
17. DW2 CHIEF INSPECTOR SAMMY MBARANI testified that he wrote to the 1st Defendant and clarified that his focus was on the escrow account. That no one was ever charged with any offense relating to the complaint by Africon Ltd. That he had handed over the file to another Officer upon his transfer. That it was the DCI that applied for and obtained the freezing orders.
Issues for Determination
18. The Court directed Counsel for the parties to file written submissions. The Court has seen and read the Plaintiffs’ written submissions dated 15th November, 2024 as well as those of the 1st Defendant of even date. The Court has also seen and read the 2nd Defendant’s written submissions dated 18th November, 2024. The Court frames the following issues for determination:
a) Whether the Defendants were justified in freezing the Plaintiffs’ Bank Accounts
b) Whether the Plaintiffs are entitled to any damages arising from the freezing of their Bank Accounts.
c) Whether the Plaintiffs are entitled to costs.
Analysis
19. At the onset, the Court acknowledges that it is undisputed that the accounts herein were unfrozen by the order of Majanja J. in his Ruling dated 10th July 2020. Therefore, the prayers sought in the Plaint relating to an injunction and unfreezing of the said accounts were overtaken by events.
20. It is also not in dispute that the Plaintiffs various accounts were indeed frozen.
a) Whether the Defendants were justified in freezing the Plaintiffs’ Bank Accounts.
21. The 1st issue for determination is whether the Defendants were justified in freezing the Plaintiffs’ accounts. The 2nd Defendant argued that it had reasonable and probable cause to proceed and act in the manner that it did. That it acted in honest belief to a complaint lodged by the Interested Party (Africon Limited).
22. The 2nd Defendant maintained that it acted within its mandate to detect and prevent crime as provided under Section 35 of the National Police Service Act. The section lists the functions of the directorate as follows:
(a) collect and provide criminal intelligence;
(b) undertake investigations on serious crimes including homicide, narcotic crimes, human trafficking, money laundering, terrorism, economic crimes, piracy, organized crime, and cyber-crime among others;
(c) maintain law and order;
(d) detect and prevent crime;
(e) apprehend offenders;
(f) maintain criminal records;
(g) conduct forensic analysis;
(h) execute the directions given to the Inspector-General by the Director of Public Prosecutions pursuant to Article 157(4) of the Constitution;
(i) coordinate country Interpol Affairs;
(j) investigate any matter that may be referred to it by the Independent Police Oversight Authority; and
(k) perform any other function conferred on it by any other written law.
23. Further, it was the 1st Defendant’s case that the Bank was served with an order dated 17th June 2020 in Milimani Chief Magistrate Criminal Miscellaneous Civil Application No. 1483 of 2020. The order compelled the Bank to freeze Account number 02501495651850. This was pending investigations by the 2nd Defendant, on an alleged offence of theft by Agent against the Plaintiffs.
24. On 26th June 2020, the 1st Defendant was served with another order compelling the Bank to freeze Account numbers 02501495651850; 03801495661810; and 03801499272410. This was pending investigations by the 2nd Defendant on an alleged offence of theft by Agent against the Plaintiffs.
25. On the same date, the Bank was served with another order dated 26th June 2020 in Milimani Chief Magistrate Criminal Miscellaneous Civil Application No. 232 of 2020. The Order compelled the Bank to freeze the following account numbers pending investigations by the 2nd Defendant on an alleged offence of theft by Agent against the Plaintiffs:-
Account Number 0250157477541200;
Account Number 0250157477541201;
Account Number 0250157477541202;
Account Number 0250149494541200;
Account Number 0250149494551200;
26. The Court notes that indeed there were orders issued directing the 1st Defendant to freeze the above-mentioned bank accounts belonging to the Plaintiffs. However, it is now in contention that the Bank froze other accounts without a court order, namely;
Account Number 0380149565180;
Account Number 03801494942910; and
Account Number 0250157477181.
27. It is clear that two of these accounts (03801494942910, 0250157477181) belonged to the 3rd and 4th Plaintiffs, respectively. They were not parties to the proceedings and dispute between the 1st Plaintiff and his client. There is no evidence produced to show that they were the subject of any investigations by the DCI or that they were persons of interest to the DCI. Why then did the Bank freeze these accounts?
28. The Bank acknowledged that these accounts were frozen without any Court order. In its defence it stated that it acted out of precaution since some proceeds from the frozen accounts were transferred to the said accounts. This position was also confirmed by PW2, who in her testimony acknowledged that monies were sent to her account by her husband. That she was not suspicious, as it was usual for her husband to send her money.
29. The Bank further argued that pursuant to the General Terms and Conditions of the Bank, it was under an obligation to freeze the accounts on suspicion of fraud. Clause 22 reads;
The Bank in its sole discretion may at any time, refuse to accept any instructions in regard to the Account, if and for so long as:
a) there is any dispute between the Customer and the Bank; or
b) the Bank has any reason to suspect that a fraud has been or is likely to be committed; or
c) the Account is being or is likely to be operated by the Customer for any illegal and/or unlawful transaction; or
d) the Bank has any doubt for any reason that either the Customer is not the person entitled to operate the Account or that there is any dispute in respect of the Mandate; or
e) the Bank is under a legal obligation to do so
30. As was already stated by this Court before, indeed the Bank reserved the right to freeze the account of its customer on the basis of suspicion of fraud through its General Terms and Conditions which are binding on its customers. That right is however not absolute as it must be exercised on demonstrable reasonable grounds. Further, it is equally the duty of the Bank to promptly inform its customer the basis and reason of this suspicion as soon as is practicable so that the customer can offer an explanation.
31. Using the test of a reasonable man, the reasonable man in this case being a man in a Matatu from Rongai to the City, he would have expected the bank to call him. That the Bank would have explained that it had reasons to believe part of the monies transferred to the Customer’s account maybe the proceeds of crime or the subject of fraud. That owing to this suspicion, the bank would not honour any further instructions on the subject account. The Bank would then have invited the customer to provide any documents, proof or explanation to assuage the Bank’s suspicions. In this day and age of mobile telephony, emails and instant messaging, the information that the account has been frozen would ordinarily reach the Client before he makes any transactions. It is the Bank that would take the initiative to contact the customer. This would save the customer from unnecessary exposures and embarrassments. Upon making the decision to freeze the customer’s bank account on the basis of suspicions of fraud already committed or likely to be committed (as per the general terms and conditions), the next point of action would be to immediately notify the Bank’s customer of this decision. A Bank acting reasonably should not act in any other way. Supposing the Customer upon being notified is able to immediately provide any relevant information or documentation, no serious harm would be done by the order. Supposing the fraud was being perpetrated against the Bank’s Customers by Third parties, the Customer would be saved from a financial loss. In all instances the duty to notify the Customer immediately and in any event as soon as practicable remains paramount.
32. In the instant case, the Bank did not offer any notification to the Plaintiffs, and they only found out about the freezing of the accounts after the accounts were frozen. For instance, the 3rd Plaintiff was only made aware of the frozen accounts after she made an inquiry at the bank following the decline of her card while making a purchase at the supermarket.
33. Having considered the evidence and arguments advanced by the parties, it is the Court’s considered opinion that the 1st Defendant was justified in freezing the Account Numbers: 0250157477541200; 0250157477541201; 0250157477541202; 0250149494541200; 0250149494551200; 02501495651850; 03801495661810; and 03801499272410 since the Bank was under a legal obligation to do so pursuant to the Court orders.
34. However, when it comes to Accounts 0380149565180; 03801494942910; and 0250157477181, though the Bank reserved the rights to freeze them; the Bank failed on its duty owed to its customer when it did not inform the Plaintiffs of the basis and reason for freezing the said accounts. More so after it received the letter dated 23rd June 2020 written by the 2nd Defendant clarifying that the 2nd Defendant’s interest was the escrow Account only. The Plaintiffs were not notified of the action taken by the Bank of freezing their accounts. They were not called to come and offer any explanations as to the suspicions held by the Bank. In this regard, the 1st Defendant was not justified in freezing these three accounts. The principles laid out in Barclays Bank plc v. Quincecare Ltd [1992] 4 AllI ER 363 though be good law do not override the duty to notify the Customer. The failure to notify the customer destroys the very basis of a reasonable suspicion.
35. As concerns the 2nd Defendant, it was acting on suspicion that an offence had been committed and could therefore not be faulted for taking steps to investigate a complaint. It was also very clear on the accounts it intended to have frozen by the Bank. Thus, it is the Court’s considered view that the 2nd Defendant acted within its mandate at that particular time.
b) Whether the Plaintiffs are entitled to any damages arising from the freezing of their Bank Accounts.
36. The 2nd issue on whether the Plaintiffs are entitled to any damages; the Plaintiffs sought special damages, exemplary damages and general damages. In their submissions, the 1st and 2nd Plaintiffs submitted that they are entitled to damages as well as exemplary damages for the actions of the 1st Defendant who without any Court order froze their accounts.
37. In addition, it was the 3rd Plaintiff’s position that she suffered great inconvenience, mental anguish and damages during the period when her personal account was unilaterally frozen by the 1st Defendant and is thus entitled to an award of appropriate damages as well as exemplary damages.
38. Special damages - On this, it is trite law that special damages must be both pleaded and proved before they can be awarded. In the case of Hahn v. Singh, Civil Appeal No. 42 of 1983 [1985] KLR 716, the Court of Appeal held as follows:
“Special damages must not only be specifically claimed (pleaded) but also strictly proved …. for they are not the direct natural or probable consequence of the act complained of and may not be inferred from the act. The degree of certainty and particularity of proof required depends on the circumstances and nature of the acts themselves.”
39. Having considered the pleadings herein, it cannot be said that the special damages were specifically pleaded; therefore, this prayer fails.
40. It was the Plaintiffs’ further averment that the 1st Defendant also refused to allow the PW1 to operate the office and client accounts of the firm and his account. This is despite receiving a letter dated 23rd June 2020 written by the 2nd Defendant clarifying that the 2nd Defendant’s interest was the escrow Account only.
41. In addition, the 1st and 2nd Plaintiffs produced evidence of the numerous transactions which were dishonoured by the 1st Defendant in respect to the 1st and 2nd Plaintiffs’ accounts. They added that the inconvenience and embarrassment occasioned by the Defendants’ actions had far reaching consequences. In fact, the business of the 1st Plaintiff was interrupted and the 1st and 2nd Plaintiffs could not access any funds to finance the office operations, pay the clients or settle the day-to-day personal financial obligations
42. Paget’s Law of Banking, 13th Edition states: -
“The Credit of a customer may be seriously injured by the wrongful dishonour of a cheque. Yet it is rare that a customer will be able to prove special damage. His claim is for general damages in respect of injury to his reputation.
As regards trading customers, the law presumes injury without proof of actual damage. The special position of traders was recognized by the House of Lords in Wilson Vs United Counties Bank Ltd (1920) AC 102, where, after reviewing the authorities, Lord Birkenhead said:
‘The Ratio decidendi in such cases is that the refusal to meet the cheque, under such circumstances, is so obviously injurious to the credit of a trader that the latter can recover, without allegation of special damage, reasonable compensation for the injury done to his credit’’.
43. Further to the above, the Court is of the opinion that punitive or exemplary damages are not payable firstly because no law prevented the banks from freezing its customers’ accounts for lawful reason. This is more so if it was suspected that there was unusual activity in such accounts and secondly, because such damages are only awarded in very limited cases.
44. In Bank of Baroda (K) Ltd V Timrod Product CA 132/2001, the Court of Appeal upheld an award of Kshs.3 million awarded to the Respondent by the High Court for loss of business credit, reputation and loss of profit following a claim by the Respondent for a dishonoured cheque.
45. The Court is also persuaded by the decisions in Mutua v Centenary Sacco Society Limited (Civil Appeal E174 of 2021) [2024] KEHC 13724 (KLR) (31 October 2024) (Judgment) and CFC Stanbic Bank Limited v Otieno-Omuga & Ouma Advocates [2019] KECA 604 (KLR).
46. It is notable that the Plaintiffs had proposed an award of Kshs.5, 000, 000 for each Plaintiff for injurious falsehoods. The Court notes that the accounts were frozen from 17th June 2020 to 10th July 2020. This is not an unduly long period of time running into months. There is evidence that transactions by the 1st, 3rd and 4th Plaintiffs were dishonoured. The Court also notes that the 2nd Plaintiff is a sole proprietor of the 1st Plaintiff. The Accounts affected involved the Law firm which is the alter ego of the 2nd Plaintiff. Taking into consideration all the events in this matter, the Court is of the considered view that general damages of Kenya Shillings Five Million only (Kshs.5, 000, 000) to each of the 1st, 3rd and 4th Plaintiffs is a reasonable compensation for the reputation of the Plaintiffs.
c) Whether the Plaintiffs are entitled to costs.
47. Costs are awarded at the discretion of the Court. As a general rule, Costs follow the event. The successful Plaintiffs are awarded the costs of the suit. These are to be paid by the 1st Defendant.
48. The Court is persuaded to allow the claim in favour of the Plaintiffs against the 1st Defendant. The claim against the 2nd Defendant is dismissed with no orders as to costs.
Determination
49. Judgement is entered in favour of the Plaintiffs against the 1st Defendant as follows;
a) A declaration that the 1st Defendant's unilateral action of freezing the Plaintiffs' bank accounts Account Number 03801495XXXX; Account Number 038014949XXXX; and Account Number 025015747XXXX (details redacted to protect privacy). was manifestly illegal, oppressive, and without any legal or justifiable basis.
b) General damages of Kenya Shillings Five Million only (Kshs.5,000,000/=) each to the 1st, 3rd and 4th Plaintiffs for inconvenience, embarrassment, annoyance and mental anguish.
c) The Plaintiffs are awarded the costs of this suit to be borne by the 1st Defendant.
d) The suit against the 2nd Defendant is dismissed with no orders as to costs.
50. It is so ordered.
D ated, Signed and Delivered at Milimani this 07th August, 2025, 2025
NJOROGE BENJAMIN K.
JUDGE
In the presence of
Mr. Kivuva for the Plaintiffs
Mr. Nadio for the 1st Defendant
N/A for the 2nd Defendant
Susan Nzioka - Court Assistant
1. This is a Judgement in respect of the Claim by the Plaintiffs against the Defendants herein.
The Plaintiffs’ Case
2. The Plaintiffs filed the Plaint dated 26th June 2020 and averred that on 13th March 2020, Kshs.176,588,395.60 was lawfully deposited into the 1st Plaintiff’s Escrow Client Account. This was following a Court decree issued in HCCC No. 329 of 2018. The 1st Plaintiff had acted as Counsel for the Plaintiff/Decree holder in that suit. Upon receipt of the funds, the 1st Plaintiff proceed to disburse them according to his client’s instructions and partly as legal fees earned.
3. In June 2020, a dispute arose over accounts and outstanding legal fees between the 1st Plaintiff and his client. This led to the client lodging a complaint with the Directorate of Criminal Investigations (DCI). The client alleged theft by agent against the 1st Plaintiff. This led to a Court order on 17th June 2020 freezing the escrow account.
4. The Plaintiffs aver that the freezing order was illegal and misrepresented. That the DCI and the 1st Defendant (the bank) had no authority to freeze the account without due process. Moreover, the bank, without notice or proper basis, extended the freezing order to all accounts held by the Plaintiffs. This is despite the Court order only referencing the single escrow account. This action, according to the Plaintiffs, was unjustified, malicious, and harmful to their business operations. This went on even after a DCI letter clarified that only one account was under investigation.
5. The Plaintiffs prayed for judgment against the Defendants for: -
a.) A declaration that the Defendant's unilateral action of freezing the Plaintiffs' bank accounts tabulated in Paragraph 7 above is manifestly illegal, oppressive, and without any legal or justifiable basis.
b.) An Order directing the Defendants to immediately unfreeze the Plaintiffs' bank accounts and to allow normal banking operations to resume forthwith and without any conditions whatsoever, namely: -
Name Account No. Branch
1. Kagwimi Kang'ethe 03801495661810 Eldama Park, Westlands
& Co. Advocates
(Client Account)
2. Kagwimi Kang'ethe 0380149565180 Eldama Park, Westlands
& Co. Advocates
(Office Account)
3. George Kagwimi 03801499272410 Eldama Park, Westlands
Kang'ethe
(Personal Account)
4. Joyce Waria 03801494942910 Eldama Park, Westlands
Njoroge
(Personal Account)
5. Tru-Flow Traders 02501574771810 Gigiri
Limited
(Current Account)
c.) A permanent injunction restraining the Defendants whether by themselves, officers, servants or agents from unlawfully freezing or interfering in any manner whatsoever with the Plaintiffs’ bank accounts.
d.) special damages under paragraph 23 of the Plaint to be tabulated and specified thereafter.
e.) Exemplary damages under paragraph 22 of the Plaint above to be assessed by the Court.
f.) Damages under paragraph 22 of the Plaint for inconvenience, embarrassment, annoyance, mental anguish to be assessed by the Court.
g.) Costs of the suit.
The Defendants’ Case
6. In contention, the 1st Defendant filed the statement of defence dated 11th December 2020. In response, the 1st Defendant stated that on 17th June 2020, the Bank was served with an order dated 17th June 2020 in Milimani Chief Magistrate Criminal Miscellaneous Civil Application No. 1483 of 2020. The Order compelled the Bank to freeze Account number 02501495651850 pending investigations by the 2nd Defendant, on an alleged offence of theft by Agent against the Plaintiffs.
7. On 27th June 2020, the Bank was served with another order dated 26th June 2020 in Milimani Chief Magistrate Criminal Miscellaneous Civil Application No. 231 of 2020. The Order compelled the Bank to freeze the following account numbers pending investigations by the 2nd Defendant, on an alleged offence of theft by Agent against the Plaintiffs:-
a) Account Number 02501495651850;
b) Account Number 03801495661810;
c) Account Number 03801499272410;
8. On the same date, the Bank was served with another order dated 26th June 2020 in Milimani Chief Magistrate Criminal Miscellaneous Civil Application No. 232 of 2020. The order compelled the Bank to freeze the following account numbers pending investigations by the 2nd Defendant on an alleged offence of theft by Agent against the Plaintiffs:-
a) Account Number 0250157477541200;
b) Account Number 0250157477541201;
c) Account Number 0250157477541202;
d) Account Number 0250149494541200;
e) Account Number 0250149494551200;
9. The 1st Defendant complied with the said orders in good faith, noting that disobedience of such an order would have been an act of contempt. This would have rendered them answerable to the Court as aiders and abettors.
10. Therefore, the Bank's actions were done according to the law and as per the general terms and conditions of the Bank. The Plaintiffs agreed to be bound to these conditions at the point of opening their respective accounts.
11. The 2nd Defendant filed its statement of defence dated 22nd January 2021. It denied the averments in the Plaint. It averred that it received a complaint from Africon Limited against the 1st Plaintiff. This was in relation to a matter previously handled by the 1st Plaintiff on behalf of Africon Limited.
12. It further averred that the order issued in Misc. Criminal Application No.1483 of 2020 was issued by the Chief Magistrate's Court upon full consideration of the application seeking the said order. That it was issued for the sole purpose of facilitating the investigation process commenced by the 2nd Defendant.
Evidence
13. PW1 GEORGE KAGWIMI KANGETHE adopted his witness statement as his evidence in chief and reiterated its content. He stated that a dispute arose pertaining to legal fees, and the Client (Africon Limited) made an allegation of theft to the 2nd Defendant. An order was issued directing the 1st Defendant to freeze only the escrow account, and he was never served. However, his other accounts were frozen for two weeks, and his business was at a standstill, as he had no access to the funds therein.
14. He added that the 2nd Defendant proceeded to obtain further orders, and in all those orders, the account numbers were wrong, yet the order was used to freeze the accounts. On cross-examination. PW1 averred that the orders issued in Misc. 231 of 2020 were illegal as they were obtained while the suit was pending, thus the Defendants were seeking to sanitize their actions. He also acknowledged that he received monies in the escrow account and paid himself his fees through his personal account, and that the client was aware.
15. PW2 JOYCE WARIA NJOROGE is the wife of the 1st Plaintiff. She testified that no one told her that her accounts had been frozen. That she only found out when her cards kept being declined. Further, that when she tried to withdraw money, the cheque was declined. On cross-examination, PW2 stated that she was unaware of the dispute between her husband and his client. That the bank did not inform her of the freezing of the Accounts. She acknowledged that monies were sent to her account by her husband. That this in itself was not suspicious, as it was usual for her husband to send her money.
16. DW1 RACHEL KARIUKI also adopted her witness statement as her testimony. On cross-examination, DW1 stated that the Bank received a Court order to freeze the escrow account. That there were other Court orders in Misc. 231 of 2020. The orders were issued after the accounts were frozen, and the bank did not notify the clients of the freezing of the accounts. DW1 confirmed that the Bank did not provide the account opening documents. The Bank froze 6 accounts on suspicions of fraud. There was no evidence that the client was involved in fraud. That the bank acted with due diligence and not with the intention of hurting their clients. They (the Bank) did not know who obtained the 2nd set of Court orders.
17. DW2 CHIEF INSPECTOR SAMMY MBARANI testified that he wrote to the 1st Defendant and clarified that his focus was on the escrow account. That no one was ever charged with any offense relating to the complaint by Africon Ltd. That he had handed over the file to another Officer upon his transfer. That it was the DCI that applied for and obtained the freezing orders.
Issues for Determination
18. The Court directed Counsel for the parties to file written submissions. The Court has seen and read the Plaintiffs’ written submissions dated 15th November, 2024 as well as those of the 1st Defendant of even date. The Court has also seen and read the 2nd Defendant’s written submissions dated 18th November, 2024. The Court frames the following issues for determination:
a) Whether the Defendants were justified in freezing the Plaintiffs’ Bank Accounts
b) Whether the Plaintiffs are entitled to any damages arising from the freezing of their Bank Accounts.
c) Whether the Plaintiffs are entitled to costs.
Analysis
19. At the onset, the Court acknowledges that it is undisputed that the accounts herein were unfrozen by the order of Majanja J. in his Ruling dated 10th July 2020. Therefore, the prayers sought in the Plaint relating to an injunction and unfreezing of the said accounts were overtaken by events.
20. It is also not in dispute that the Plaintiffs various accounts were indeed frozen.
a) Whether the Defendants were justified in freezing the Plaintiffs’ Bank Accounts.
21. The 1st issue for determination is whether the Defendants were justified in freezing the Plaintiffs’ accounts. The 2nd Defendant argued that it had reasonable and probable cause to proceed and act in the manner that it did. That it acted in honest belief to a complaint lodged by the Interested Party (Africon Limited).
22. The 2nd Defendant maintained that it acted within its mandate to detect and prevent crime as provided under Section 35 of the National Police Service Act. The section lists the functions of the directorate as follows:
(a) collect and provide criminal intelligence;
(b) undertake investigations on serious crimes including homicide, narcotic crimes, human trafficking, money laundering, terrorism, economic crimes, piracy, organized crime, and cyber-crime among others;
(c) maintain law and order;
(d) detect and prevent crime;
(e) apprehend offenders;
(f) maintain criminal records;
(g) conduct forensic analysis;
(h) execute the directions given to the Inspector-General by the Director of Public Prosecutions pursuant to Article 157(4) of the Constitution;
(i) coordinate country Interpol Affairs;
(j) investigate any matter that may be referred to it by the Independent Police Oversight Authority; and
(k) perform any other function conferred on it by any other written law.
23. Further, it was the 1st Defendant’s case that the Bank was served with an order dated 17th June 2020 in Milimani Chief Magistrate Criminal Miscellaneous Civil Application No. 1483 of 2020. The order compelled the Bank to freeze Account number 02501495651850. This was pending investigations by the 2nd Defendant, on an alleged offence of theft by Agent against the Plaintiffs.
24. On 26th June 2020, the 1st Defendant was served with another order compelling the Bank to freeze Account numbers 02501495651850; 03801495661810; and 03801499272410. This was pending investigations by the 2nd Defendant on an alleged offence of theft by Agent against the Plaintiffs.
25. On the same date, the Bank was served with another order dated 26th June 2020 in Milimani Chief Magistrate Criminal Miscellaneous Civil Application No. 232 of 2020. The Order compelled the Bank to freeze the following account numbers pending investigations by the 2nd Defendant on an alleged offence of theft by Agent against the Plaintiffs:-
Account Number 0250157477541200;
Account Number 0250157477541201;
Account Number 0250157477541202;
Account Number 0250149494541200;
Account Number 0250149494551200;
26. The Court notes that indeed there were orders issued directing the 1st Defendant to freeze the above-mentioned bank accounts belonging to the Plaintiffs. However, it is now in contention that the Bank froze other accounts without a court order, namely;
Account Number 0380149565180;
Account Number 03801494942910; and
Account Number 0250157477181.
27. It is clear that two of these accounts (03801494942910, 0250157477181) belonged to the 3rd and 4th Plaintiffs, respectively. They were not parties to the proceedings and dispute between the 1st Plaintiff and his client. There is no evidence produced to show that they were the subject of any investigations by the DCI or that they were persons of interest to the DCI. Why then did the Bank freeze these accounts?
28. The Bank acknowledged that these accounts were frozen without any Court order. In its defence it stated that it acted out of precaution since some proceeds from the frozen accounts were transferred to the said accounts. This position was also confirmed by PW2, who in her testimony acknowledged that monies were sent to her account by her husband. That she was not suspicious, as it was usual for her husband to send her money.
29. The Bank further argued that pursuant to the General Terms and Conditions of the Bank, it was under an obligation to freeze the accounts on suspicion of fraud. Clause 22 reads;
The Bank in its sole discretion may at any time, refuse to accept any instructions in regard to the Account, if and for so long as:
a) there is any dispute between the Customer and the Bank; or
b) the Bank has any reason to suspect that a fraud has been or is likely to be committed; or
c) the Account is being or is likely to be operated by the Customer for any illegal and/or unlawful transaction; or
d) the Bank has any doubt for any reason that either the Customer is not the person entitled to operate the Account or that there is any dispute in respect of the Mandate; or
e) the Bank is under a legal obligation to do so
30. As was already stated by this Court before, indeed the Bank reserved the right to freeze the account of its customer on the basis of suspicion of fraud through its General Terms and Conditions which are binding on its customers. That right is however not absolute as it must be exercised on demonstrable reasonable grounds. Further, it is equally the duty of the Bank to promptly inform its customer the basis and reason of this suspicion as soon as is practicable so that the customer can offer an explanation.
31. Using the test of a reasonable man, the reasonable man in this case being a man in a Matatu from Rongai to the City, he would have expected the bank to call him. That the Bank would have explained that it had reasons to believe part of the monies transferred to the Customer’s account maybe the proceeds of crime or the subject of fraud. That owing to this suspicion, the bank would not honour any further instructions on the subject account. The Bank would then have invited the customer to provide any documents, proof or explanation to assuage the Bank’s suspicions. In this day and age of mobile telephony, emails and instant messaging, the information that the account has been frozen would ordinarily reach the Client before he makes any transactions. It is the Bank that would take the initiative to contact the customer. This would save the customer from unnecessary exposures and embarrassments. Upon making the decision to freeze the customer’s bank account on the basis of suspicions of fraud already committed or likely to be committed (as per the general terms and conditions), the next point of action would be to immediately notify the Bank’s customer of this decision. A Bank acting reasonably should not act in any other way. Supposing the Customer upon being notified is able to immediately provide any relevant information or documentation, no serious harm would be done by the order. Supposing the fraud was being perpetrated against the Bank’s Customers by Third parties, the Customer would be saved from a financial loss. In all instances the duty to notify the Customer immediately and in any event as soon as practicable remains paramount.
32. In the instant case, the Bank did not offer any notification to the Plaintiffs, and they only found out about the freezing of the accounts after the accounts were frozen. For instance, the 3rd Plaintiff was only made aware of the frozen accounts after she made an inquiry at the bank following the decline of her card while making a purchase at the supermarket.
33. Having considered the evidence and arguments advanced by the parties, it is the Court’s considered opinion that the 1st Defendant was justified in freezing the Account Numbers: 0250157477541200; 0250157477541201; 0250157477541202; 0250149494541200; 0250149494551200; 02501495651850; 03801495661810; and 03801499272410 since the Bank was under a legal obligation to do so pursuant to the Court orders.
34. However, when it comes to Accounts 0380149565180; 03801494942910; and 0250157477181, though the Bank reserved the rights to freeze them; the Bank failed on its duty owed to its customer when it did not inform the Plaintiffs of the basis and reason for freezing the said accounts. More so after it received the letter dated 23rd June 2020 written by the 2nd Defendant clarifying that the 2nd Defendant’s interest was the escrow Account only. The Plaintiffs were not notified of the action taken by the Bank of freezing their accounts. They were not called to come and offer any explanations as to the suspicions held by the Bank. In this regard, the 1st Defendant was not justified in freezing these three accounts. The principles laid out in Barclays Bank plc v. Quincecare Ltd [1992] 4 AllI ER 363 though be good law do not override the duty to notify the Customer. The failure to notify the customer destroys the very basis of a reasonable suspicion.
35. As concerns the 2nd Defendant, it was acting on suspicion that an offence had been committed and could therefore not be faulted for taking steps to investigate a complaint. It was also very clear on the accounts it intended to have frozen by the Bank. Thus, it is the Court’s considered view that the 2nd Defendant acted within its mandate at that particular time.
b) Whether the Plaintiffs are entitled to any damages arising from the freezing of their Bank Accounts.
36. The 2nd issue on whether the Plaintiffs are entitled to any damages; the Plaintiffs sought special damages, exemplary damages and general damages. In their submissions, the 1st and 2nd Plaintiffs submitted that they are entitled to damages as well as exemplary damages for the actions of the 1st Defendant who without any Court order froze their accounts.
37. In addition, it was the 3rd Plaintiff’s position that she suffered great inconvenience, mental anguish and damages during the period when her personal account was unilaterally frozen by the 1st Defendant and is thus entitled to an award of appropriate damages as well as exemplary damages.
38. Special damages - On this, it is trite law that special damages must be both pleaded and proved before they can be awarded. In the case of Hahn v. Singh, Civil Appeal No. 42 of 1983 [1985] KLR 716, the Court of Appeal held as follows:
“Special damages must not only be specifically claimed (pleaded) but also strictly proved …. for they are not the direct natural or probable consequence of the act complained of and may not be inferred from the act. The degree of certainty and particularity of proof required depends on the circumstances and nature of the acts themselves.”
39. Having considered the pleadings herein, it cannot be said that the special damages were specifically pleaded; therefore, this prayer fails.
40. It was the Plaintiffs’ further averment that the 1st Defendant also refused to allow the PW1 to operate the office and client accounts of the firm and his account. This is despite receiving a letter dated 23rd June 2020 written by the 2nd Defendant clarifying that the 2nd Defendant’s interest was the escrow Account only.
41. In addition, the 1st and 2nd Plaintiffs produced evidence of the numerous transactions which were dishonoured by the 1st Defendant in respect to the 1st and 2nd Plaintiffs’ accounts. They added that the inconvenience and embarrassment occasioned by the Defendants’ actions had far reaching consequences. In fact, the business of the 1st Plaintiff was interrupted and the 1st and 2nd Plaintiffs could not access any funds to finance the office operations, pay the clients or settle the day-to-day personal financial obligations
42. Paget’s Law of Banking, 13th Edition states: -
“The Credit of a customer may be seriously injured by the wrongful dishonour of a cheque. Yet it is rare that a customer will be able to prove special damage. His claim is for general damages in respect of injury to his reputation.
As regards trading customers, the law presumes injury without proof of actual damage. The special position of traders was recognized by the House of Lords in Wilson Vs United Counties Bank Ltd (1920) AC 102, where, after reviewing the authorities, Lord Birkenhead said:
‘The Ratio decidendi in such cases is that the refusal to meet the cheque, under such circumstances, is so obviously injurious to the credit of a trader that the latter can recover, without allegation of special damage, reasonable compensation for the injury done to his credit’’.
43. Further to the above, the Court is of the opinion that punitive or exemplary damages are not payable firstly because no law prevented the banks from freezing its customers’ accounts for lawful reason. This is more so if it was suspected that there was unusual activity in such accounts and secondly, because such damages are only awarded in very limited cases.
44. In Bank of Baroda (K) Ltd V Timrod Product CA 132/2001, the Court of Appeal upheld an award of Kshs.3 million awarded to the Respondent by the High Court for loss of business credit, reputation and loss of profit following a claim by the Respondent for a dishonoured cheque.
45. The Court is also persuaded by the decisions in Mutua v Centenary Sacco Society Limited (Civil Appeal E174 of 2021) [2024] KEHC 13724 (KLR) (31 October 2024) (Judgment) and CFC Stanbic Bank Limited v Otieno-Omuga & Ouma Advocates [2019] KECA 604 (KLR).
46. It is notable that the Plaintiffs had proposed an award of Kshs.5, 000, 000 for each Plaintiff for injurious falsehoods. The Court notes that the accounts were frozen from 17th June 2020 to 10th July 2020. This is not an unduly long period of time running into months. There is evidence that transactions by the 1st, 3rd and 4th Plaintiffs were dishonoured. The Court also notes that the 2nd Plaintiff is a sole proprietor of the 1st Plaintiff. The Accounts affected involved the Law firm which is the alter ego of the 2nd Plaintiff. Taking into consideration all the events in this matter, the Court is of the considered view that general damages of Kenya Shillings Five Million only (Kshs.5, 000, 000) to each of the 1st, 3rd and 4th Plaintiffs is a reasonable compensation for the reputation of the Plaintiffs.
c) Whether the Plaintiffs are entitled to costs.
47. Costs are awarded at the discretion of the Court. As a general rule, Costs follow the event. The successful Plaintiffs are awarded the costs of the suit. These are to be paid by the 1st Defendant.
48. The Court is persuaded to allow the claim in favour of the Plaintiffs against the 1st Defendant. The claim against the 2nd Defendant is dismissed with no orders as to costs.
Determination
49. Judgement is entered in favour of the Plaintiffs against the 1st Defendant as follows;
a) A declaration that the 1st Defendant's unilateral action of freezing the Plaintiffs' bank accounts Account Number 03801495XXXX; Account Number 038014949XXXX; and Account Number 025015747XXXX (details redacted to protect privacy). was manifestly illegal, oppressive, and without any legal or justifiable basis.
b) General damages of Kenya Shillings Five Million only (Kshs.5,000,000/=) each to the 1st, 3rd and 4th Plaintiffs for inconvenience, embarrassment, annoyance and mental anguish.
c) The Plaintiffs are awarded the costs of this suit to be borne by the 1st Defendant.
d) The suit against the 2nd Defendant is dismissed with no orders as to costs.
50. It is so ordered.
D ated, Signed and Delivered at Milimani this 07th August, 2025, 2025
NJOROGE BENJAMIN K.
JUDGE
In the presence of
Mr. Kivuva for the Plaintiffs
Mr. Nadio for the 1st Defendant
N/A for the 2nd Defendant
Susan Nzioka - Court Assistant