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Court of AppealPartially AllowedCivil Appeal No. 132 of 2001· [2008] KECA 350 (KLR)

Bank of Baroda (Kenya) Limited v Timwood Products Ltd.

Court of Appeal
30 May 2008
ROR.S.C. OmoloPhilip Kiptoo TunoiP.K. TunoiEGE.M. Githinji
5,385 words in judgment
View original judgmentRead on Kenya Law Watch case
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·~22 min to read original · ~4 min brief

The bottom line

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Kenya's Court of Appeal confirmed a bank must pay damages for wrongfully dishonouring cheques, but a bank served with a court order owes its duty only to the court.

What this practically means

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Executive summary

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Timwood Products, a long-standing customer of Bank of Baroda, sued after the Bank dishonoured eighteen cheques totalling Kshs.646,258.85 drawn on a current account with a Kshs.3 million credit balance, and after the Bank refused for some sixteen months to release credit balances in its sterling and US dollar retention accounts. The dishonour followed shareholder disputes between the Patel and Bakrania families, letters from A.N. Patel asking that the accounts be frozen, and a consent order of Pall, J in related litigation which was served on the Bank. The High Court (Hewett, J) found the Bank in breach, awarding the forex sums, Kshs.80,000 for currency fluctuation losses, Kshs.3 million for loss of credit, reputation and profit, and interest at 20%. The Bank appealed; Timwood cross-appealed. The Court of Appeal, adopting the House of Lords' position in Customs & Excise Commissioners v Barclays Bank plc, held that a bank notified of an injunctive order owes its duty only to the court and assumes no duty of care to the injunction holder, but that the consent order here did not freeze the accounts and gave no lawful basis for dishonour. It reduced the interest period from nineteen to sixteen months, substituted court rates for the 20% awarded, upheld the currency-fluctuation and Kshs.3 million awards, and rejected the cross-appeal, including the claim for exemplary or aggravated damages, holding that 'smacks of malice' is not a finding of malice and that Obongo remains the applicable law on exemplary damages. The appeal was dismissed with costs, save for the minor amendments; the cross-appeal was dismissed with costs to the Bank.

Key legal issues

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01

Whether the consent order of 31st May, 1996 froze Timwood's accounts

Holding

The order did not freeze the accounts; it only required A.N. Patel's countersignature or sufficient opportunity to sign before cheques were honoured

Reasoning

The court read the consent order as stipulating only that cheques be countersigned by Patel or that he have sufficient opportunity to sign. The Bank's sole witness never said the eighteen cheques were dishonoured for non-countersignature, and some cheques were honoured in the same period, inconsistent with a freeze. The Bank therefore had no lawful basis for dishonour.

p. 5
02

Whether service of the consent order legally obliged the Bank to dishonour the cheques

Holding

No; a notified bank's duty is to the court and contempt exposure does not create a duty of care to the plaintiff; the Bank was not bound to stop payment on these facts

Reasoning

The court adopted the House of Lords' holding in Customs & Excise Commissioners v Barclays Bank plc: a bank notified of an injunction must comply and risks contempt, but assumes no voluntary responsibility to the injunction holder. Since the order did not freeze the accounts, the Bank could not rely on it to justify dishonour.

p. 5
03

Interest: pleading, period and rate

Holding

Interest need not be specially pleaded or proved; the period was reduced from 19 to 16 months and the rate set at court rates instead of 20%

Reasoning

Section 26 of the Civil Procedure Act gives the trial court absolute discretion on interest. The Bank unlawfully withheld the forex funds for about sixteen months from the closure demand, so interest runs for that period. As commercial rates were not agreed or specified, court rates were substituted for the 20% awarded.

p. 6
04

Award of Kshs.80,000/- for currency fluctuations

Holding

Upheld; the loss was pleaded with particulars and there was evidence supporting it

Reasoning

The plaint contained particulars of loss showing a total loss of Kshs.80,494, and the award of Kshs.80,000 was less than that. Bakrania testified that exchange rates fluctuated to the company's detriment by roughly Kshs.80,000 during the period the Bank unlawfully held the funds.

p. 7
05

Award of Kshs.3,000,000/- for loss of credit, business reputation and loss of profit

Holding

Upheld as a temperate composite award, though loss of profit was not proved and should have been separately pleaded

Reasoning

Loss of profit is special damage requiring specific pleading and proof; no contracts lost, trading accounts or profit decline were proved, and the trial Judge misdirected himself in excusing the absence of accounts. Nevertheless the composite award for loss of credit and reputation was not so inordinately high as to warrant interference.

p. 8
06

Exemplary and aggravated damages (cross-appeal)

Holding

Refused; 'smacks of malice' is not a finding of malice and exemplary damages are confined to the Obongo/Rookes v Barnard categories

Reasoning

The trial Judge never specifically held the Bank malicious; he expressly awarded compensatory, not aggravated, damages. Exemplary damages in Kenya remain restricted to oppressive action by government servants and benefit-seeking at the plaintiff's expense, per Obongo v Municipal Council of Kisumu approving Rookes v Barnard.

p. 9

Legal principles established

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  • A bank notified of an injunctive order is obliged to comply with its terms and its only duty is to the court, enforceable by contempt; it does not thereby assume a duty of care to the injunction holder
  • The adopted position on third parties served with or notified of freezing injunctions is the law applicable in Kenya
  • Under section 26 of the Civil Procedure Act the trial court has absolute discretion to award interest; interest need not be specially pleaded and proved
  • Loss of profit is special damage which must be specifically pleaded and proved; it cannot be lumped with loss of credit and reputation
  • Exemplary damages in Kenya are awardable only in the two Rookes v Barnard categories, per Obongo v Municipal Council of Kisumu
  • A first appellate court must reconsider the entire evidence, evaluate it itself and draw its own conclusions

Court orders

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  1. 1.The period of 19 months used by the trial Judge is reduced to 16 months, with interest on the forex account calculated from 26th June, 1996 for a period of 16 months, i.e. up to 26th November, 1997
  2. 2.The rate of interest shall be at court rates and not at 20% as awarded by the trial Judge
  3. 3.All other orders made by the trial Judge are confirmed
  4. 4.The Bank's appeal is dismissed with costs
  5. 5.Timwood's cross-appeal is dismissed with the costs thereof to the Bank, the appellant

Authorities

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Legislation

  • Civil Procedure Actsection 26

Cases cited (6)

  • ELLIOT VS KLINGER & OTHERS
    [1967] 1 WLR 1165

    Proper remedy against a third party aiding and abetting breach of an injunction is committal or sequestration

  • CUSTOMS & EXCISE COMMISSIONERS V. BARCLAYS BANK plc
    [2006] 3

    A bank notified of injunctive orders must comply but assumes no duty of care to the injunction holder; its only duty is to the court

  • GIBSON OMBONYA SHIRAKU V. COMMERCIAL BANK OF AFRICA
    Civil Appeal No. 16 of 1985 (unreported)

    Damages for wrongful dishonour of a cheque by a bank are awardable

  • KPOHRAROR V. WOOLWICH BUILDING SOCIETY
    [1964] 4 ALL E.R. 119

    Damages for wrongful dishonour of a cheque are awardable

  • OBONGO & ANOTHER V. MUNICIPAL COUNCIL OF KISUMU
    [1971] EA 91

    Two circumstances in which exemplary damages are awardable in Kenya; approved Rookes v Barnard

  • ROOKES V. BANARD & OTHERS
    [1964] AC 1129

    Principles restricting exemplary damages

On appeal from
High Court of Kenya at Nairobi
H.C.C.C. No. 1036 of 1997
Jurisdiction invoked
First appellate jurisdiction over the High Court (appeal as of right against the judgment and decree)

Key timeline

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Practical implications

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Frequently asked questions

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Later judgments citing this (25)

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Judgments in the corpus that rely on this one. Where the Court said how it treated the authority, that is shown.

Cite this brief

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Cite this brief

Caselaw, "Bank of Baroda (Kenya) Limited v Timwood Products Ltd.", Case Analysis (2008). Civil Appeal No. 132 of 2001. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2008/350/eng@2008-05-30

Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.