Standard Chartered Bank Kenya Ltd v Intercom Services Ltd & 4 others [2004] KECA 163 (KLR)

Being a first appellate court, the Court re-evaluated the evidence. The pleadings (paragraph 12) and issue No 4 required proof that the bank's servants informed the police the cheque was unlawfully obtained. Nderitu's own evidence was uncertain; the police witnesses said Ayodi merely pointed out discrepancies. The trial judge found only that Ayodi made a report and intended to direct inquiries to police, which did not answer the issue as framed.

Relying on Tournier and Marfani, the Court held the duty of secrecy is subject to exceptions including the bank's own interest and the duty to protect the public against fraud or crime. Once circumstances warrant inquiry, results must satisfy the bank; the extent depends on current banking practice and the circumstances of each case. The bank's operating manual required referral of unusual large cheques, and no evidence of banking practice faulted the inquiry.

The Court applied Jediel Nyaga v Silas Mucheke and Egbema v West Nile District Administrator: a person who reports to police ceases to have anything to do with the matter; police action taken after independent investigation cannot be attributed to the reporter absent malice or absence of reasonable and probable cause. The prosecution and account-freezing orders were independent acts of the police, the Attorney General and the courts.

The Court reviewed the evidence showing unregistered accountants, fictitious vehicles and consignees, and goods not exported, concluding the claim was tainted with illegality. It held the criminal appeal did not declare the fifth respondent innocent, and under section 45 of the Evidence Act judgments are not conclusive proof of what they state. However, Githinji JA would not resolve unpleaded illegality without pleadings, finding the defence an afterthought and its resolution without pleadings prejudicial; both judges nonetheless agreed the appeal should be allowed.

Applying Salomon v Salomon and Adams v Cape Industries, the Court held each company is a distinct legal entity; the alter ego principle attributes a director's mental state to the company to fix the company with liability, and was misapplied here. The fifth respondent had no account or contractual relationship with the bank, and no inquiry was made on the accounts of the second, third and fourth respondents, so they had no cause of action in breach of that contract.

Applying Hadley v Baxendale and Galoo Ltd v Bright Grahame Murray, Githinji JA held that breach of contract sounds in damages only where the loss resulted from the breach and was within the parties' contemplation, and only where the breach is the dominant or effective cause. The funds were never lost — the money was released to the respondents with accrued interest — and the freezing orders and bail terms were the acts of the courts.

The High Court quashed the convictions on grounds of variation between pretences laid and proof, duplicity, and defective charges, and even considered but rejected a retrial; it expressed serious doubt whether foreign exchange received related to the claims. Under section 45 of the Evidence Act, judgments relating to matters of a public nature are admissible but not conclusive proof of that which they state.