Delphis Bank Limited v Caneland Limited [2014] KECA 202 (KLR)
The bottom line
#Kenya's Court of Appeal confirmed that a bank named as payee on cheques can be personally liable to refund money when a deal collapses, and sham defences will be struck out.
What this practically means
#Executive summary
#Questions the Court framed
#The issues the Court set itself to decide, in its own words.
- 1.Whether the trial Judge erred in striking out the defences and entering judgment
Key legal issues
#Whether the appellant was a mere collecting bank or an agent of Dolphin Holdings Ltd liable for the money received
The Court held the appellant was the payee of the cheques and thus an agent of Dolphin Holdings Ltd receiving in its own right, not a collecting bank, and was liable to refund the money on total failure of consideration.
The cheques totalling Shs.72.9 million were drawn in favour of the appellant itself, not its customer Dolphin Holdings Ltd, which is inconsistent with the role of a collecting bank. The appellant received the payments as payee on instructions of Dolphin Holdings Ltd, making it the principal's agent. Its denial of receipt was found dishonest. Its status as a banker afforded no defence unavailable to a non-banker payee.
Whether the trial Judge erred in striking out the defences and entering summary judgment
The Court of Appeal affirmed the striking out, holding the defences were a sham with no plausible defence on the facts, notwithstanding that the trial judge went too far into the merits.
Although the strike-out power must be used sparingly and the trial judge went 'a tad too far' into the merits, that caused no prejudice. The transaction had failed, money changed hands and was recoverable on total failure of consideration from the appellant as payee and agent. Neither the appellant nor its co-defendant had a legitimate defence, so a trial would merely inflate costs and delay justice.
Recovery of money paid from the agent of a principal where the contract failed
Money in the hands of the principal's agent is recoverable by the payer on total failure of consideration; the payer may recover from either or both the principal and the agent.
Relying on Sutters v Briggs, the Court reasoned that had the money gone directly to Dolphin Holdings Ltd, it would be recoverable as money had and received on total failure of consideration; the fact that it was in the hands of Dolphin's agent did not prejudice that right. The appellant was fully cognisant of the transactions and had the cheques drawn in its name.
Legal principles established
#- The power to strike out pleadings must be exercised sparingly and cautiously because it is done without the court being fully informed on the merits.
- Even one bona fide triable issue entitles a defendant to unconditional leave to defend on an application for summary judgment.
- A defence need only raise triable issues, not issues that must succeed, to go to trial.
- A payee of cheques acting as agent of a principal, in a transaction that has failed, is liable to refund the money on total failure of consideration; the status of banker affords no greater defence than that of a non-banker.
- Where there is no plausible defence and the defence is a sham, summary judgment is appropriate despite the general caution against striking out.
Court orders
#- 1.Appeal dismissed with costs to the respondent
- 2.Judgment of the High Court striking out the defences and entering judgment for the respondent affirmed
The bench
#One judgment of the whole court — no separate or dissenting opinions.
- On appeal from
- High Court of Kenya at Nairobi (Milimani Commercial Courts)
- H.C.C.C. No.1135 of 1998
- Jurisdiction invoked
- First appellate jurisdiction over appeals from the High Court under the Constitution and the Civil Procedure Act (appeal against judgment entered under Order VI rule 13(1)(b), (c) and (d) of the Civil Procedure Rules)
Relief refused
#Setting aside the High Court judgment and decree and allowing the matter to proceed to trial
The Court found no plausible or tenable defence; the appellant was liable as payee and agent of Dolphin Holdings Ltd on total failure of consideration
Costs
Appeal dismissed with costs to the respondent.
Quotable passages
#Verbatim from the judgment, each located to the page it appears on in the official PDF — so these can be cited and checked directly.
We are in agreement with the learned Judge's conclusion and we find no merit in the appeal which we hereby dismiss with costs to the respondent.
as the power to strike out pleadings is exercised without the court being fully informed on the merits of the case, through discovery and oral evidence, it should be used sparingly and cautiously
In an application for summary judgment even one triable issue, if bona fide, would entitle the defendant to have unconditional leave to defend.
Where there is no plausible defence and it is plain that the defence is a sham or cannot be sustained, it would be pointless to put the parties through a trial that would inflate costs to the disadvantage of the debtor and delay delivery of justice to the prejudice of the claimant.
the appellant as the agent of Dolphin Holdings Ltd was liable to return the money to the respondent, Caneland Ltd
Issues in the judgment
#Internal inconsistency on the date of the refund agreement: the narration refers to an agreement dated 13th May 1998 while elsewhere it is described as the agreement dated 13th May 97
Key timeline
#Practical implications
#Frequently asked questions
#Cite this brief
#Cite this brief
Caselaw, "Delphis Bank Limited v Caneland Limited [2014] KECA 202 (KLR)", Case Analysis (2014). Civil Appeal No 282 of 2002. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2014/202/eng@2014-11-28
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.