(Being an Appeal against the judgment and decree of Hon. Gillian Simatwo (RM/Adjudicator delivered on 25th October 2024 in Milimani Small Claims Court Comm. Case No. E1896 of 2024)
1. The respondent is a customer of the appellant. The respondent was operating an M-pesa account ( a mobile phone-based money transfer platform where various forms of transactions including withdrawal and deposit services are conducted) with the appellant through his mobile phone line No. 0114497883 provided to him by the appellant. Between 17th February 2023 and 27th December 2023, a total sum of KShs 268,420.61 was withdrawn from the respondent’s account.
2. It was the respondent’s case presented through his statement of claim dated 27th February 2024 and supported by his witness statement of the same date and documents as per the list dated 28th February 2024 that the money was withdrawn from his said account without his involvement or knowledge. He therefore held the appellant negligent in the discharge of its duty of care towards him and prayed that the said sum of money be paid back to him together with interest at court rates.
3. In response, the appellant through its response dated 19th June 2024, witness statement of Joyce Wambui Mugwe, dated 26th August 2024 and accompanying documents as per the list of documents of the same date, denied that it was in breach of its duty of care towards the respondent and contended that it properly discharged the said duty of care towards the respondent and therefore he was to blame for his misfortune because the appellant provided him with secure procedures for conducting his transactions, that is a Personal Identification Number (PIN) only known to the respondent. That the respondent had a duty to keep his PIN private. For the appellant, any correct entry of the PIN for purposes of transacting is presumed to have been entered by the respondent. That the respondent also had a duty of care towards the appellant to immediately report any suspicious activities in his account which took place in November and December 2023.
4. It was the appellant’s contention that the respondent perpetuated access to the PIN of his M-Pesa account in breach of the terms and conditions of operating a mobile phone line.
5. It was the appellant’s further contention that the respondent was in breach of the appellant’s terms and conditions of operating a mobile phone line and shared or allowed a third party to access his personal information being his national identification (ID) card number who allegedly carted away the funds in his mobile phone line M-pesa account No. 0114497883.
6. In further response to the claim, the appellant averred that the respondent had materially misstated and misrepresented the facts giving rise to the claim and that the evidence did not prove breach of duty of care and breach of its obligations by the appellant towards him. In respect to this averment the appellant stated that the respondent failed to obtain sufficient and reliable data and information to enable him to draw reasonable conclusions that the appellant breached its duty of care and obligations under its M-Pesa terms and conditions thereby laying himself to potential prosecution and that the respondent had failed to take reasonable care in the presentation and non-concealing of private data or information.
7. Further that the respondent was untruthfully alleging that the funds were withdrawn without his consent.
8. As a result of the aforesaid the appellant averred that it shall seek indemnity and contribution from the respondent.
9. The appellant therefore prayed that the respondent’s claim against it be dismissed.
10. Each of the parties called one witness, as per the filed witness statements at the hearing, who testified adopting his or her filed witness statement and produced the filed documents as exhibits and was cross-examined.
11. The learned trial Adjudicator having heard the claim, in a judgment dated 25th October 2024, allowed the same and entered judgment as claimed with interest thereon at court rates from the date of the loss together with costs.
12. Arising out of that decision, the appellant filed the present appeal through a memorandum dated 25th November 2024 which contains some fourteen grounds as follows:
a. The learned trial Adjudicator erred in law and in fact by failing to take into account the undisputed fact that all M-pesa transactions are authorized via an M-pesa PIN only known to the M-pesa account holder and that every correct entry of the same is deemed to have been entered by the M-pesa account holder.
b. The learned trial Adjudicator erred in law and in fact by failing to take into account the undisputed fact that the respondent was in control of his mobile phone the day he alleges the fraudulent transactions occurred since his M-pesa Account number was in a roaming network at the material time.
c. The learned trial Adjudicator erred in law and in fact in holding that the appellant had breached its duty of care towards the respondent to ensure that the funds held in their M-pesa Account was free from fraud and theft.
d. The learned trial Adjudicator erred in law and in fact in disregarding the fact that a PIN only known to the respondent was used in authorizing the alleged unauthorized transactions.
e. The learned trial Adjudicator erred in law and in fact in placing the duty to ensure the safety of the respondent's M-pesa account solely on the appellant disregarding the fact that the respondent failed in his duty to keep his PIN a secret and to immediately report to the appellant in case of any unauthorized transactions.
f. The learned trial Adjudicator erred in law and in fact in holding that the appellant had a duty to its customers which included protecting the customer from exposure to fraud by agents such as directors, business partners and other third parties disregarding the fact that this duty had been discharged by issuing the Respondent with an M-pesa PIN only known to the respondent.
g. The learned trial Adjudicator erred in law and in fact in disregarding the disclaimer of liability as provided in Clause 6 of the M-pesa Terms and Conditions which provided that the appellant would deem any correct entry of the PIN as entered by the M-pesa account holder as the sole custodian of the PIN.
h. The learned trial Adjudicator erred in law and in fact in disregarding the fact that a PIN only known to the respondent was used in the M-pesa transactions and the fact that the respondent did not immediately report to the appellant when the alleged transactions were occurring, thus the appellant had no way of knowing that it was not the respondent withdrawing the funds.
i. The learned trial Adjudicator erred in law and in fact in holding that the appellant was negligent in the manner it dealt with the respondent's account.
j. The learned trial Adjudicator erred in law and in fact by failing to evaluate evidence on record, thus, arriving at an erroneous finding.
k. The learned trial Adjudicator erred in law and in fact in making a finding that the respondent was entitled to the sum of Kshs. 268,420.61/- payable by the appellant who did not take part in the withdrawal of the same from the respondent's M-pesa account and neither did it receive the M-pesa amount.
l. The learned trial Adjudicator erred law and in holding that the respondent was entitled to interest at the court's rate from the date of the loss of the claimed sum and costs of the suit.
m. The learned trial Adjudicator erred in law and in fact in failing to find that the respondent had not proved his case against the appellant on a balance of probability.
n. The learned Magistrate erred in law by failing to consider and give weight to the evidence tabled by the appellant's witness, the appellant's submissions and the authorities attached thereto.
13. The appellant therefore prays that the appeal be allowed, the Judgment of the trial court delivered on 25th October 2024 be set aside in its entirety and the subsequent order be vacated and be substituted with an order dismissing the respondent's claim against the appellant in the lower court and the costs of the appeal and the lower court be borne by the respondent.
14. I note that twelve out of the fourteen grounds of appeal bear the standard phrase of “…erred in law and in fact…”
15. As a preliminary issue for guidance to learned counsel for the parties, he may wish to note that the SCC is presided over by an Adjudicator and not a magistrate because of the reference to “the learned magistrate” in some of the grounds of appeal and submissions. It is important to bear in mind these seemingly little but very vital provisions of the (Small Claims Court Act (Cap. 10A Laws of Kenya) SCCA in order to appreciate and always have at the back of the mind the spirit behind the creation of this very distinguished court because, otherwise it gets meshed up with the operations of the magistrates’ court and there it loses meaning as a different court. In the Kenyan context, an Adjudicator is indeed a magistrate, with full legal training and an admitted advocate of the High Court. However, while presiding over the SCC she removes the robes of a magistrate and wears the ordinary garment of an Adjudicator who in my thinking, in the spirit of the SCCA, should come down to the level of the ordinary person on the streets. The reasons are that the SCC is designed to be simple, that is, without the strictures of formal procedure and strict evidentiary rules, fast and accessible. The operations of the SCC must thus be distinguished from those of the magistrate’s court.
16. First, an appeal to this court from the SCC is on points of law only as provided for under section 38 of the SCC Act. The submissions by learned counsel for the appellant takes the form of submissions before the magistrates’ court, urging this court to analyze and reassess the evidence on record and reach its own findings. That is misplaced. From the provisions of the SCC Act, it follows that this court cannot proceed with the case by way of a rehearing and re-evaluation of evidence as is the norm in other civil matters as provided for under section 78(2) of the Civil Procedure Act (Cap. 21) Laws of Kenya and the Rules made thereunder which have limited application in proceedings before the SCC.
17. Learned counsel for the appellant would do well to refer and be guided by the Court of Appeal’s observation in the case of Independent Electoral and Boundaries Commission & another v Mule & 3 others [2014] KECA 890 (KLR) that:
“Those points in an appeal of the kind before us, being from an election court’s decision, are further circumscribed by Section 85A of the Elections Act which limits appeals to the Court of Appeal to matters of law only. It is therefore quite strange and improper that each of the seventeen grounds, without exception, commences with a standard expression “the judge erred in fact and law” or “the learned Judge erred in law and in fact.” Clearly the drafters of the memorandum did not have the legal provision in active contemplation. Had they done so, they would have found that by invoking factual errors, they were inviting jurisdictional objections to their entire appeal.”
18. It follows from this decision that an appeal to this court from the SCC being on points of law only as provided for under section 38 of the SCC Act this court is not permitted to interfere with the findings of fact by the trial court unless the decision is bad in law and cannot be supported by the evidence tendered. On that issue the Court of Appeal in M’Riungu v. Republic [1983] KLR 455, held thus:
“where a right of appeal is confined to question of law, an appellate court has loyalty to accept the findings of fact of the lower court(s) and resist the temptation to treat findings of fact as holdings of fact and law and it should not interfere with the decision of the trial court or the first appellate court unless it is apparent that on evidence, no reasonable tribunal could have reached that conclusion, which would be the same as holding that the decision is bad in law”.
19. The appellate court may however interfere with the findings of the trial court where it is demonstrated that there was no evidence at all upon which such findings were based or that the evidence relied upon was of such a nature that no reasonable tribunal, properly addressing its mind on it, could have made such findings (see for instance Bashir Haji Abdullahi v Adan Mohammed Nooru & 3 others [2014] eKLR).
20. Further, the manner in which the grounds of appeal are presented shows that they dispute findings of facts by the learned Adjudicator and this offends the provisions of section 38 of the SCCA. What this court has to consider are those grounds of appeal raised by the appellant that are on points of law only.
21. The appeal was canvassed by way of written submissions filed by both parties.
22. The appellant submits that the issues for determination are three, namely:
a. Whether the trial magistrate (should be adjudicator and so I will refer to her as such going forward in spite of reference to magistrate by the appellant) erred in law and in fact in holding that the appellant owed the respondent a duty of care?
b. Whether the trial Adjudicator erred in law and fact in holding that the appellant had breached its duty of care towards the respondent?
c. Who should bear the costs of the appeal.
23. The respondent on his part raised the following issues for determination:
a. Whether the Adjudicator erred in fact and in law by holding that the Appellant owed the Respondent a duty of care and had breached such duty through inadequate security systems and failure to detect anomalous transactions.
b. Whether the Adjudicator erred by failing to hold that PIN usage automatically implied authorization.
c. Whether the Adjudicator erred by failing to find that the Respondent's delay in reporting constituted contributory negligence.
d. Whether the M-PESA Terms and Conditions absolved the Appellant of liability.
e. Whether the Respondent proved his case on a balance of probabilities and whether the award of interest and costs was justified.
24. I have considered the grounds of appeal raised in the memorandum of appeal, the record of appeal and the submissions by learned counsels for the parties and the authorities provided.
25. Both counsels have made lengthy submissions just as they did before the SCC. Perhaps it needs reminding that the SCC is not a magistrate’s court and the procedures in the two courts are different. An important feature to bear in mind while considering the appeal is that the SCC Act exempts the court’s proceedings from the rigid application of the standards of evidence applicable in other court proceedings and permits the court to include as evidence any material that it deems credible or trustworthy (emphasis by underlining supplied). It follows from this provision that it is largely upon the Adjudicator to determine the material to rely upon. Section 32 of the Act provides that the strict evidentiary rules applicable in other courts are not wholly applied in the Small Claims Court. It further, provides that the Court may admit as evidence any oral or written testimony, record, or other material even though the same is not admissible as evidence in any other Court under the law of evidence (emphasis supplied). This means the Adjudicator has the discretion to admit any evidence which may be helpful in establishing whether or not the claim is proved. This provision further limits the province of the appellate court to issues of law only as the appellate court would have no means to overturn the findings of fact by the trial court and substitute them with its own findings.
26. The issue of considering the facts before the trial court is further limited by the procedure applicable before the SCC which is unlike the procedure before the magistrates’ courts. Section 3 of the SCC Act on the guiding principles of the court provides inter alia that the court shall be guided by the principles of judicial authority prescribed under Article 159(2) of the Constitution and without prejudice to the same, the Court shall adopt such procedures as the Court deems appropriate to ensure fairness of process and simplicity of procedure (emphasis supplied). The fairness of process is further reinforced under Part IV which is the substantive part that deals with procedure. Section 17 of the Act which falls under Part IV, it provides that:
S. 17. Subject to this Act and Rules, the Court shall have control of its own procedure in the determination of claims before it and, in the exercise of that control, the Court shall have regard to the principles of natural justice.
27. Therefore, the principles of natural justice rather than the technical procedural rules under the CPR take centre stage in a SCC hearing. In Justice Amraphael Mbogholi Msagha v. Chief Justice of the Republic of Kenya & 7 Others Nairobi HCMCA No. 1062 of 2004; [2006] 2 KLR 553; [2006] eKLR, the Court, in discussing the rules of natural justice, cited De Smith and Brazier, Constitutional and Administrative Law 6th Edition (Penguin United Kingdom: 1989) (pages 557-558) which states:
“The content of natural justice is therefore flexible and variable. All that is fundamentally demanded of the decision maker is that his decision in its own context be made with due regard for the affected parties’ interests and accordingly be reached without bias and after giving the party or parties a chance to put his or their case....”
28. Indeed, technicality of procedure and strict rules of evidence as apply in the magistrates’ court were excluded so that the Adjudicator could be able to achieve one of the main objectives of the court which is provided under section 34 of the Act on expeditious disposal of cases with quite onerous provisions that:
S. 34 (1) All proceedings before the Court on any particular day so far as is practicable shall be heard and determined on the same day or on a day to day basis until final determination of the matter which shall be within sixty days from the date of filing the claim.
(2) Judgment given in determination of any claim shall be delivered on the same day and in any event, not later than three (3) days from the date of the hearing.
(3) The Court may only adjourn the hearing of any matter under exceptional and unforeseen circumstances which shall be recorded and be limited to a maximum of three adjournments.
29. While proceeding under the CPR and applying the strict rules of evidence, before the magistrate’s court, it is practically impossible to hear and determine every case that comes before it in a day’s sitting. It is only through strict compliance with the provisions of the SCCA with the exclusion of the strict evidentiary rules and technicalities of procedure under the CPR through adoption of a flexible procedure by the learned Adjudicator that this can be achieved. For me, the provisions of the SCCA would best be applied with the court proceeding more through the alternative means of dispute resolution of negotiation, and conciliation between parties with the court’s guidance as well as summary determinations rather than laborious taking of notes from witnesses, analyzing evidence, sifting through pages of lengthy submissions by learned counsels and rendering lengthy judgments. Provided that the rules of natural justice are adhered to in considering a claim, I do not think a judgment of the SCC should be more than two pages long.
30. My thinking therefore is that the responsibility of this court when considering an appeal from the SCC is to consider the legality and reasonableness of the decision of the learned Adjudicator. If this court is satisfied that the law was properly considered and applied and a reasonable evaluation of the facts had, then it will not interfere with the findings and determination of the trial court. The converse would also be true. That where the law was not properly considered and/or applied or where the decision does not seem reasonable from the facts before the court, then this court will interfere. Given the provisions of the SCC Act excluding to a large extent the strict provisions of the law of evidence and the technicalities of procedure under the CPR, I would find that the standard of reasonableness would be that of ordinary person on the street.
31. I need not belabour the first issue for determination as raised by the appellant because in its submissions it has readily conceded and correctly so, that the Adjudicator correctly found that there existed a duty of care between the appellant and the respondent and that their relationship and therefore threshold was that of a banker and its customer.
32. That leads to the second issue for determination which is common to both parties, that is, whether or not the trial Adjudicator erred in law in holding that the appellant had breached its duty of care towards the respondent.
33. The appellant submits that the main issue for determination then is the scope of the appellant’s duty towards the respondent and whether the same was discharged.
34. According to the appellant, the threshold was met and so the appellant was not in breach of that duty of care towards the respondent.
35. The respondent submits on that issue that the learned Adjudicator did not err by holding that the PIN usage did not automatically imply authorization by the account holder, the respondent herein, as contended by the appellant.
36. There is no dispute that the relationship that existed between the appellant and the respondent was that of a banker and customer. The appellant however submits further that unlike a typical bank-customer relationship, the M-pesa account owner retains a large portion of control as regards the transactions in the M-Pesa account and that the appellant does not directly operate the M-Pesa account because of the PIN safeguard. Only the customer authorizes any transaction by insertion of the PIN. Unfortunately, the evidence of the appellant’s witness before the SCC did not explain any such difference and neither does this submission. I therefore find that the duty of care owed by each to the other is similar.
37. In considering this issue, I am persuaded to follow the decision in the case of Karak Brothers Company Ltd –vs- Burden [1972] AII ER 1210, as cited in the case of Ombonya v Housing Finance Ltd & 3 others [2024] KEHC 869 (KLR) where it was held that:
“… a bank has a duty under its contract with its customer to exercise ‘reasonable care and skill’ in carrying out its part with regard to operations within its contract with its customer. The standard of that reasonable care and skill is an objective standard applicable to bankers. Whether or not it has been attained in any particular case has to be decided in the light of all the relevant facts, which can vary almost infinitely.”
38. It is common ground and the appellant has stressed this point that the M-Pesa PIN is a security code tied to the specific account operated by a customer using a mobile SIM card. It ensures that the specific M-Pesa account cannot be accessed without authorization. The respondent’s case was that he was outside the country with his SIM card at the time the transactions were being conducted on his M-Pesa account within the country. That fact was not disputed by the appellant. The transactions were both for deposit and withdrawal of funds into his account.
39. It is a fact that requires no proof that all M-Pesa accounts are carried on a phone number. A phone number is issued to a customer through a SIM card which is available only from the mobile phone service provider, in this case, Safaricom, the appellant herein.
40. So that, the respondent being outside the country with his SIM card meant that for a transaction to take place in Kenya, it could only be by use of a duplicate phone number and therefore a duplicate SIM card. There is no evidence that the respondent had the ability to duplicate his own number or SIM card so that he could be with one outside the country and the other to leave behind with someone else. Only the appellant as the issuing entity could explain the existence of the duplicate phone number and SIM card that was used within the country, whether it was registered in the respondent’s name using his national identity card credentials or not. If there was, as the case seems to be, a duplicate number using the same credentials, only the appellant and not the respondent had the sophisticated technology to know of that double existence and its origin. Once there was duplication of the number, it meant that for one to access the use of the M-Pesa account, the person had access to the respondent’s M-Pesa PIN.
41. It was held in the case cited and relied upon by both parties of Barclays Bank of Kenya Limited v Diana Sambo Mwasela [2020] KEHC 7569 (KLR) that:
“The Appellant seems to suggest that the Respondent is liable for the lost suit amount since the withdrawals were enabled by the Personal Identification Number that was only privy to the Plaintiff. I have a difficulty with the Appellant. This is because the Appellant only alleged that the Respondent caused the money to be withdrawn since her pin was used in the process of withdrawing such monies. There are other persons other than the Respondent which may have access to the Appellant’s details and this includes the bank employees, directors among others. Secondly, the bank ought to have other mechanisms to trace the exact person who withdrew the said monies without the Appellant’s authorization such as CCTV. If such mechanisms are not in existence, then many customers are at risk of losing their money through unauthorised transactions.”
42. I am persuaded to follow that authority herein as good authority for the appellant’s fulfilment of its duty of care towards the respondent.
43. The appellant holds all the data to show the exact points at which the transactions were carried out on the respondent’s M-Pesa account. Once the respondent adduced evidence that he had his SIM card with him out of the country, whether in active use or not, and that he never transacted any M-Pesa business on it, the evidential burden shifted to the appellant to prove its contention that in fact, access to the account had been authorized by the respondent. Its allegation that the respondent had given out his M-Pesa PIN was never substantiated by evidence. The respondent’s evidence that such access was not authorized by him or through his knowledge therefore remains unchallenged.
44. This court takes judicial notice of the fact that transactions for withdrawal of money can only be done on the appellant’s network from within a certain proximal distance of the withdrawing number from the M-Pesa agent. I do not know whether it is a statutory requirement, a policy issue by Safaricom or the source of this practice but no doubt it is a practice that exists and I believe for good cause as a fraud prevention measure. In that regard section 60(1)(o) of the Evidence Act stipulates that:
“The courts shall take judicial notice of the following facts–
(a) ...
(o) all matters of general or local notoriety.”
45. This provision was considered by the Supreme Court in the case of Salat v Independent Electoral and Boundaries Commission & 7 others [2015] KESC 31 (KLR) where it observed that:
“The Oxford Dictionary of Law (ed. Jonathan Law and Elizabeth A. Martin), 7th ed. (Oxford University Press, 2009) (at page 306) thus defines “judicial notice”:
“The means by which the court may take as proven certain facts without hearing evidence. Notorious facts…may be judicially noticed without inquiry.”
Judicial notice is important to the effective discharge of the judicial mandate, as contemplated by the Constitution of Kenya, 2010. Vindication of this perception is crystal-clear, from the case-law experience worldwide.
In Commonwealth Shipping Representative v. P. & O. Branch Service [1923] A.C. 191 at p. 210, Lord Sumner in the English House of Lords thus observed:
“Judicial notice refers to facts which a judge can be called upon to receive and to act upon, either from his general knowledge of them, or from inquiries to be made by himself for his own information from sources to which it is proper for him to refer.”
Kenya’s Evidence Act (Cap. 80, Laws of Kenya) expressly provides [Section 60 (1)] that:
“The courts shall take judicial notice of the following facts:
(a) ...
(o) all matters of general or local notoriety [things that everyone knows]…”
There are many cases in which judicial notice has commended itself to Kenya’s Courts. Here is a typical example. In *Republic v. Simon Wambugu Kimani & 20 Others [2015] eKLR, the learned trial Judge thus observed:
“In my view, the Court was fully entitled to take judicial notice of notorious prevailing facts in the public domain, even where the same were not formally brought to the attention of the Court by either the prosecution or the defence.”
46. Therefore, once the respondent had established that he was out of the country at all material times that the transactions were conducted on his M-Pesa account within the country, the evidential burden shifted to the appellant to prove how possible it was for the respondent’s SIM card to be used to withdraw money when it was so far away. The issue raised by the respondent was not merely the use of his PIN as the appellant has largely contended in its defence. Therefore the holding relied upon by the appellant in the case cited in Encyclopedia of Banking Law C.21 Selangor of United Rubber Estate Ltd vs Cradock (No.3) [1968] 2 ALL ER 1073) as cited in the Kenyan case of Co-operative Bank of Kenya Limited v Ngera Muuthami t/a Rozina Transporters [2019] KEHC 1429 (KLR) is not of much help to the appellant. I will with respec
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1. The respondent is a customer of the appellant. The respondent was operating an M-pesa account ( a mobile phone-based money transfer platform where various forms of transactions including withdrawal and deposit services are conducted) with the appellant through his mobile phone line No. 0114497883 provided to him by the appellant. Between 17th February 2023 and 27th December 2023, a total sum of KShs 268,420.61 was withdrawn from the respondent’s account.
2. It was the respondent’s case presented through his statement of claim dated 27th February 2024 and supported by his witness statement of the same date and documents as per the list dated 28th February 2024 that the money was withdrawn from his said account without his involvement or knowledge. He therefore held the appellant negligent in the discharge of its duty of care towards him and prayed that the said sum of money be paid back to him together with interest at court rates.
3. In response, the appellant through its response dated 19th June 2024, witness statement of Joyce Wambui Mugwe, dated 26th August 2024 and accompanying documents as per the list of documents of the same date, denied that it was in breach of its duty of care towards the respondent and contended that it properly discharged the said duty of care towards the respondent and therefore he was to blame for his misfortune because the appellant provided him with secure procedures for conducting his transactions, that is a Personal Identification Number (PIN) only known to the respondent. That the respondent had a duty to keep his PIN private. For the appellant, any correct entry of the PIN for purposes of transacting is presumed to have been entered by the respondent. That the respondent also had a duty of care towards the appellant to immediately report any suspicious activities in his account which took place in November and December 2023.
4. It was the appellant’s contention that the respondent perpetuated access to the PIN of his M-Pesa account in breach of the terms and conditions of operating a mobile phone line.
5. It was the appellant’s further contention that the respondent was in breach of the appellant’s terms and conditions of operating a mobile phone line and shared or allowed a third party to access his personal information being his national identification (ID) card number who allegedly carted away the funds in his mobile phone line M-pesa account No. 0114497883.
6. In further response to the claim, the appellant averred that the respondent had materially misstated and misrepresented the facts giving rise to the claim and that the evidence did not prove breach of duty of care and breach of its obligations by the appellant towards him. In respect to this averment the appellant stated that the respondent failed to obtain sufficient and reliable data and information to enable him to draw reasonable conclusions that the appellant breached its duty of care and obligations under its M-Pesa terms and conditions thereby laying himself to potential prosecution and that the respondent had failed to take reasonable care in the presentation and non-concealing of private data or information.
7. Further that the respondent was untruthfully alleging that the funds were withdrawn without his consent.
8. As a result of the aforesaid the appellant averred that it shall seek indemnity and contribution from the respondent.
9. The appellant therefore prayed that the respondent’s claim against it be dismissed.
10. Each of the parties called one witness, as per the filed witness statements at the hearing, who testified adopting his or her filed witness statement and produced the filed documents as exhibits and was cross-examined.
11. The learned trial Adjudicator having heard the claim, in a judgment dated 25th October 2024, allowed the same and entered judgment as claimed with interest thereon at court rates from the date of the loss together with costs.
12. Arising out of that decision, the appellant filed the present appeal through a memorandum dated 25th November 2024 which contains some fourteen grounds as follows:
a. The learned trial Adjudicator erred in law and in fact by failing to take into account the undisputed fact that all M-pesa transactions are authorized via an M-pesa PIN only known to the M-pesa account holder and that every correct entry of the same is deemed to have been entered by the M-pesa account holder.
b. The learned trial Adjudicator erred in law and in fact by failing to take into account the undisputed fact that the respondent was in control of his mobile phone the day he alleges the fraudulent transactions occurred since his M-pesa Account number was in a roaming network at the material time.
c. The learned trial Adjudicator erred in law and in fact in holding that the appellant had breached its duty of care towards the respondent to ensure that the funds held in their M-pesa Account was free from fraud and theft.
d. The learned trial Adjudicator erred in law and in fact in disregarding the fact that a PIN only known to the respondent was used in authorizing the alleged unauthorized transactions.
e. The learned trial Adjudicator erred in law and in fact in placing the duty to ensure the safety of the respondent's M-pesa account solely on the appellant disregarding the fact that the respondent failed in his duty to keep his PIN a secret and to immediately report to the appellant in case of any unauthorized transactions.
f. The learned trial Adjudicator erred in law and in fact in holding that the appellant had a duty to its customers which included protecting the customer from exposure to fraud by agents such as directors, business partners and other third parties disregarding the fact that this duty had been discharged by issuing the Respondent with an M-pesa PIN only known to the respondent.
g. The learned trial Adjudicator erred in law and in fact in disregarding the disclaimer of liability as provided in Clause 6 of the M-pesa Terms and Conditions which provided that the appellant would deem any correct entry of the PIN as entered by the M-pesa account holder as the sole custodian of the PIN.
h. The learned trial Adjudicator erred in law and in fact in disregarding the fact that a PIN only known to the respondent was used in the M-pesa transactions and the fact that the respondent did not immediately report to the appellant when the alleged transactions were occurring, thus the appellant had no way of knowing that it was not the respondent withdrawing the funds.
i. The learned trial Adjudicator erred in law and in fact in holding that the appellant was negligent in the manner it dealt with the respondent's account.
j. The learned trial Adjudicator erred in law and in fact by failing to evaluate evidence on record, thus, arriving at an erroneous finding.
k. The learned trial Adjudicator erred in law and in fact in making a finding that the respondent was entitled to the sum of Kshs. 268,420.61/- payable by the appellant who did not take part in the withdrawal of the same from the respondent's M-pesa account and neither did it receive the M-pesa amount.
l. The learned trial Adjudicator erred law and in holding that the respondent was entitled to interest at the court's rate from the date of the loss of the claimed sum and costs of the suit.
m. The learned trial Adjudicator erred in law and in fact in failing to find that the respondent had not proved his case against the appellant on a balance of probability.
n. The learned Magistrate erred in law by failing to consider and give weight to the evidence tabled by the appellant's witness, the appellant's submissions and the authorities attached thereto.
13. The appellant therefore prays that the appeal be allowed, the Judgment of the trial court delivered on 25th October 2024 be set aside in its entirety and the subsequent order be vacated and be substituted with an order dismissing the respondent's claim against the appellant in the lower court and the costs of the appeal and the lower court be borne by the respondent.
14. I note that twelve out of the fourteen grounds of appeal bear the standard phrase of “…erred in law and in fact…”
15. As a preliminary issue for guidance to learned counsel for the parties, he may wish to note that the SCC is presided over by an Adjudicator and not a magistrate because of the reference to “the learned magistrate” in some of the grounds of appeal and submissions. It is important to bear in mind these seemingly little but very vital provisions of the (Small Claims Court Act (Cap. 10A Laws of Kenya) SCCA in order to appreciate and always have at the back of the mind the spirit behind the creation of this very distinguished court because, otherwise it gets meshed up with the operations of the magistrates’ court and there it loses meaning as a different court. In the Kenyan context, an Adjudicator is indeed a magistrate, with full legal training and an admitted advocate of the High Court. However, while presiding over the SCC she removes the robes of a magistrate and wears the ordinary garment of an Adjudicator who in my thinking, in the spirit of the SCCA, should come down to the level of the ordinary person on the streets. The reasons are that the SCC is designed to be simple, that is, without the strictures of formal procedure and strict evidentiary rules, fast and accessible. The operations of the SCC must thus be distinguished from those of the magistrate’s court.
16. First, an appeal to this court from the SCC is on points of law only as provided for under section 38 of the SCC Act. The submissions by learned counsel for the appellant takes the form of submissions before the magistrates’ court, urging this court to analyze and reassess the evidence on record and reach its own findings. That is misplaced. From the provisions of the SCC Act, it follows that this court cannot proceed with the case by way of a rehearing and re-evaluation of evidence as is the norm in other civil matters as provided for under section 78(2) of the Civil Procedure Act (Cap. 21) Laws of Kenya and the Rules made thereunder which have limited application in proceedings before the SCC.
17. Learned counsel for the appellant would do well to refer and be guided by the Court of Appeal’s observation in the case of Independent Electoral and Boundaries Commission & another v Mule & 3 others [2014] KECA 890 (KLR) that:
“Those points in an appeal of the kind before us, being from an election court’s decision, are further circumscribed by Section 85A of the Elections Act which limits appeals to the Court of Appeal to matters of law only. It is therefore quite strange and improper that each of the seventeen grounds, without exception, commences with a standard expression “the judge erred in fact and law” or “the learned Judge erred in law and in fact.” Clearly the drafters of the memorandum did not have the legal provision in active contemplation. Had they done so, they would have found that by invoking factual errors, they were inviting jurisdictional objections to their entire appeal.”
18. It follows from this decision that an appeal to this court from the SCC being on points of law only as provided for under section 38 of the SCC Act this court is not permitted to interfere with the findings of fact by the trial court unless the decision is bad in law and cannot be supported by the evidence tendered. On that issue the Court of Appeal in M’Riungu v. Republic [1983] KLR 455, held thus:
“where a right of appeal is confined to question of law, an appellate court has loyalty to accept the findings of fact of the lower court(s) and resist the temptation to treat findings of fact as holdings of fact and law and it should not interfere with the decision of the trial court or the first appellate court unless it is apparent that on evidence, no reasonable tribunal could have reached that conclusion, which would be the same as holding that the decision is bad in law”.
19. The appellate court may however interfere with the findings of the trial court where it is demonstrated that there was no evidence at all upon which such findings were based or that the evidence relied upon was of such a nature that no reasonable tribunal, properly addressing its mind on it, could have made such findings (see for instance Bashir Haji Abdullahi v Adan Mohammed Nooru & 3 others [2014] eKLR).
20. Further, the manner in which the grounds of appeal are presented shows that they dispute findings of facts by the learned Adjudicator and this offends the provisions of section 38 of the SCCA. What this court has to consider are those grounds of appeal raised by the appellant that are on points of law only.
21. The appeal was canvassed by way of written submissions filed by both parties.
22. The appellant submits that the issues for determination are three, namely:
a. Whether the trial magistrate (should be adjudicator and so I will refer to her as such going forward in spite of reference to magistrate by the appellant) erred in law and in fact in holding that the appellant owed the respondent a duty of care?
b. Whether the trial Adjudicator erred in law and fact in holding that the appellant had breached its duty of care towards the respondent?
c. Who should bear the costs of the appeal.
23. The respondent on his part raised the following issues for determination:
a. Whether the Adjudicator erred in fact and in law by holding that the Appellant owed the Respondent a duty of care and had breached such duty through inadequate security systems and failure to detect anomalous transactions.
b. Whether the Adjudicator erred by failing to hold that PIN usage automatically implied authorization.
c. Whether the Adjudicator erred by failing to find that the Respondent's delay in reporting constituted contributory negligence.
d. Whether the M-PESA Terms and Conditions absolved the Appellant of liability.
e. Whether the Respondent proved his case on a balance of probabilities and whether the award of interest and costs was justified.
24. I have considered the grounds of appeal raised in the memorandum of appeal, the record of appeal and the submissions by learned counsels for the parties and the authorities provided.
25. Both counsels have made lengthy submissions just as they did before the SCC. Perhaps it needs reminding that the SCC is not a magistrate’s court and the procedures in the two courts are different. An important feature to bear in mind while considering the appeal is that the SCC Act exempts the court’s proceedings from the rigid application of the standards of evidence applicable in other court proceedings and permits the court to include as evidence any material that it deems credible or trustworthy (emphasis by underlining supplied). It follows from this provision that it is largely upon the Adjudicator to determine the material to rely upon. Section 32 of the Act provides that the strict evidentiary rules applicable in other courts are not wholly applied in the Small Claims Court. It further, provides that the Court may admit as evidence any oral or written testimony, record, or other material even though the same is not admissible as evidence in any other Court under the law of evidence (emphasis supplied). This means the Adjudicator has the discretion to admit any evidence which may be helpful in establishing whether or not the claim is proved. This provision further limits the province of the appellate court to issues of law only as the appellate court would have no means to overturn the findings of fact by the trial court and substitute them with its own findings.
26. The issue of considering the facts before the trial court is further limited by the procedure applicable before the SCC which is unlike the procedure before the magistrates’ courts. Section 3 of the SCC Act on the guiding principles of the court provides inter alia that the court shall be guided by the principles of judicial authority prescribed under Article 159(2) of the Constitution and without prejudice to the same, the Court shall adopt such procedures as the Court deems appropriate to ensure fairness of process and simplicity of procedure (emphasis supplied). The fairness of process is further reinforced under Part IV which is the substantive part that deals with procedure. Section 17 of the Act which falls under Part IV, it provides that:
S. 17. Subject to this Act and Rules, the Court shall have control of its own procedure in the determination of claims before it and, in the exercise of that control, the Court shall have regard to the principles of natural justice.
27. Therefore, the principles of natural justice rather than the technical procedural rules under the CPR take centre stage in a SCC hearing. In Justice Amraphael Mbogholi Msagha v. Chief Justice of the Republic of Kenya & 7 Others Nairobi HCMCA No. 1062 of 2004; [2006] 2 KLR 553; [2006] eKLR, the Court, in discussing the rules of natural justice, cited De Smith and Brazier, Constitutional and Administrative Law 6th Edition (Penguin United Kingdom: 1989) (pages 557-558) which states:
“The content of natural justice is therefore flexible and variable. All that is fundamentally demanded of the decision maker is that his decision in its own context be made with due regard for the affected parties’ interests and accordingly be reached without bias and after giving the party or parties a chance to put his or their case....”
28. Indeed, technicality of procedure and strict rules of evidence as apply in the magistrates’ court were excluded so that the Adjudicator could be able to achieve one of the main objectives of the court which is provided under section 34 of the Act on expeditious disposal of cases with quite onerous provisions that:
S. 34 (1) All proceedings before the Court on any particular day so far as is practicable shall be heard and determined on the same day or on a day to day basis until final determination of the matter which shall be within sixty days from the date of filing the claim.
(2) Judgment given in determination of any claim shall be delivered on the same day and in any event, not later than three (3) days from the date of the hearing.
(3) The Court may only adjourn the hearing of any matter under exceptional and unforeseen circumstances which shall be recorded and be limited to a maximum of three adjournments.
29. While proceeding under the CPR and applying the strict rules of evidence, before the magistrate’s court, it is practically impossible to hear and determine every case that comes before it in a day’s sitting. It is only through strict compliance with the provisions of the SCCA with the exclusion of the strict evidentiary rules and technicalities of procedure under the CPR through adoption of a flexible procedure by the learned Adjudicator that this can be achieved. For me, the provisions of the SCCA would best be applied with the court proceeding more through the alternative means of dispute resolution of negotiation, and conciliation between parties with the court’s guidance as well as summary determinations rather than laborious taking of notes from witnesses, analyzing evidence, sifting through pages of lengthy submissions by learned counsels and rendering lengthy judgments. Provided that the rules of natural justice are adhered to in considering a claim, I do not think a judgment of the SCC should be more than two pages long.
30. My thinking therefore is that the responsibility of this court when considering an appeal from the SCC is to consider the legality and reasonableness of the decision of the learned Adjudicator. If this court is satisfied that the law was properly considered and applied and a reasonable evaluation of the facts had, then it will not interfere with the findings and determination of the trial court. The converse would also be true. That where the law was not properly considered and/or applied or where the decision does not seem reasonable from the facts before the court, then this court will interfere. Given the provisions of the SCC Act excluding to a large extent the strict provisions of the law of evidence and the technicalities of procedure under the CPR, I would find that the standard of reasonableness would be that of ordinary person on the street.
31. I need not belabour the first issue for determination as raised by the appellant because in its submissions it has readily conceded and correctly so, that the Adjudicator correctly found that there existed a duty of care between the appellant and the respondent and that their relationship and therefore threshold was that of a banker and its customer.
32. That leads to the second issue for determination which is common to both parties, that is, whether or not the trial Adjudicator erred in law in holding that the appellant had breached its duty of care towards the respondent.
33. The appellant submits that the main issue for determination then is the scope of the appellant’s duty towards the respondent and whether the same was discharged.
34. According to the appellant, the threshold was met and so the appellant was not in breach of that duty of care towards the respondent.
35. The respondent submits on that issue that the learned Adjudicator did not err by holding that the PIN usage did not automatically imply authorization by the account holder, the respondent herein, as contended by the appellant.
36. There is no dispute that the relationship that existed between the appellant and the respondent was that of a banker and customer. The appellant however submits further that unlike a typical bank-customer relationship, the M-pesa account owner retains a large portion of control as regards the transactions in the M-Pesa account and that the appellant does not directly operate the M-Pesa account because of the PIN safeguard. Only the customer authorizes any transaction by insertion of the PIN. Unfortunately, the evidence of the appellant’s witness before the SCC did not explain any such difference and neither does this submission. I therefore find that the duty of care owed by each to the other is similar.
37. In considering this issue, I am persuaded to follow the decision in the case of Karak Brothers Company Ltd –vs- Burden [1972] AII ER 1210, as cited in the case of Ombonya v Housing Finance Ltd & 3 others [2024] KEHC 869 (KLR) where it was held that:
“… a bank has a duty under its contract with its customer to exercise ‘reasonable care and skill’ in carrying out its part with regard to operations within its contract with its customer. The standard of that reasonable care and skill is an objective standard applicable to bankers. Whether or not it has been attained in any particular case has to be decided in the light of all the relevant facts, which can vary almost infinitely.”
38. It is common ground and the appellant has stressed this point that the M-Pesa PIN is a security code tied to the specific account operated by a customer using a mobile SIM card. It ensures that the specific M-Pesa account cannot be accessed without authorization. The respondent’s case was that he was outside the country with his SIM card at the time the transactions were being conducted on his M-Pesa account within the country. That fact was not disputed by the appellant. The transactions were both for deposit and withdrawal of funds into his account.
39. It is a fact that requires no proof that all M-Pesa accounts are carried on a phone number. A phone number is issued to a customer through a SIM card which is available only from the mobile phone service provider, in this case, Safaricom, the appellant herein.
40. So that, the respondent being outside the country with his SIM card meant that for a transaction to take place in Kenya, it could only be by use of a duplicate phone number and therefore a duplicate SIM card. There is no evidence that the respondent had the ability to duplicate his own number or SIM card so that he could be with one outside the country and the other to leave behind with someone else. Only the appellant as the issuing entity could explain the existence of the duplicate phone number and SIM card that was used within the country, whether it was registered in the respondent’s name using his national identity card credentials or not. If there was, as the case seems to be, a duplicate number using the same credentials, only the appellant and not the respondent had the sophisticated technology to know of that double existence and its origin. Once there was duplication of the number, it meant that for one to access the use of the M-Pesa account, the person had access to the respondent’s M-Pesa PIN.
41. It was held in the case cited and relied upon by both parties of Barclays Bank of Kenya Limited v Diana Sambo Mwasela [2020] KEHC 7569 (KLR) that:
“The Appellant seems to suggest that the Respondent is liable for the lost suit amount since the withdrawals were enabled by the Personal Identification Number that was only privy to the Plaintiff. I have a difficulty with the Appellant. This is because the Appellant only alleged that the Respondent caused the money to be withdrawn since her pin was used in the process of withdrawing such monies. There are other persons other than the Respondent which may have access to the Appellant’s details and this includes the bank employees, directors among others. Secondly, the bank ought to have other mechanisms to trace the exact person who withdrew the said monies without the Appellant’s authorization such as CCTV. If such mechanisms are not in existence, then many customers are at risk of losing their money through unauthorised transactions.”
42. I am persuaded to follow that authority herein as good authority for the appellant’s fulfilment of its duty of care towards the respondent.
43. The appellant holds all the data to show the exact points at which the transactions were carried out on the respondent’s M-Pesa account. Once the respondent adduced evidence that he had his SIM card with him out of the country, whether in active use or not, and that he never transacted any M-Pesa business on it, the evidential burden shifted to the appellant to prove its contention that in fact, access to the account had been authorized by the respondent. Its allegation that the respondent had given out his M-Pesa PIN was never substantiated by evidence. The respondent’s evidence that such access was not authorized by him or through his knowledge therefore remains unchallenged.
44. This court takes judicial notice of the fact that transactions for withdrawal of money can only be done on the appellant’s network from within a certain proximal distance of the withdrawing number from the M-Pesa agent. I do not know whether it is a statutory requirement, a policy issue by Safaricom or the source of this practice but no doubt it is a practice that exists and I believe for good cause as a fraud prevention measure. In that regard section 60(1)(o) of the Evidence Act stipulates that:
“The courts shall take judicial notice of the following facts–
(a) ...
(o) all matters of general or local notoriety.”
45. This provision was considered by the Supreme Court in the case of Salat v Independent Electoral and Boundaries Commission & 7 others [2015] KESC 31 (KLR) where it observed that:
“The Oxford Dictionary of Law (ed. Jonathan Law and Elizabeth A. Martin), 7th ed. (Oxford University Press, 2009) (at page 306) thus defines “judicial notice”:
“The means by which the court may take as proven certain facts without hearing evidence. Notorious facts…may be judicially noticed without inquiry.”
Judicial notice is important to the effective discharge of the judicial mandate, as contemplated by the Constitution of Kenya, 2010. Vindication of this perception is crystal-clear, from the case-law experience worldwide.
In Commonwealth Shipping Representative v. P. & O. Branch Service [1923] A.C. 191 at p. 210, Lord Sumner in the English House of Lords thus observed:
“Judicial notice refers to facts which a judge can be called upon to receive and to act upon, either from his general knowledge of them, or from inquiries to be made by himself for his own information from sources to which it is proper for him to refer.”
Kenya’s Evidence Act (Cap. 80, Laws of Kenya) expressly provides [Section 60 (1)] that:
“The courts shall take judicial notice of the following facts:
(a) ...
(o) all matters of general or local notoriety [things that everyone knows]…”
There are many cases in which judicial notice has commended itself to Kenya’s Courts. Here is a typical example. In *Republic v. Simon Wambugu Kimani & 20 Others [2015] eKLR, the learned trial Judge thus observed:
“In my view, the Court was fully entitled to take judicial notice of notorious prevailing facts in the public domain, even where the same were not formally brought to the attention of the Court by either the prosecution or the defence.”
46. Therefore, once the respondent had established that he was out of the country at all material times that the transactions were conducted on his M-Pesa account within the country, the evidential burden shifted to the appellant to prove how possible it was for the respondent’s SIM card to be used to withdraw money when it was so far away. The issue raised by the respondent was not merely the use of his PIN as the appellant has largely contended in its defence. Therefore the holding relied upon by the appellant in the case cited in Encyclopedia of Banking Law C.21 Selangor of United Rubber Estate Ltd vs Cradock (No.3) [1968] 2 ALL ER 1073) as cited in the Kenyan case of Co-operative Bank of Kenya Limited v Ngera Muuthami t/a Rozina Transporters [2019] KEHC 1429 (KLR) is not of much help to the appellant. I will with respec
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