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Court of AppealDismissedCivil Appeal No. 19 of 2015· [2015] KECA 274 (KLR)

Kim Jong Kyu v Housing Finance Company Ltd & 2 others [2015] KECA 274 (KLR)

Court of Appeal of Kenya
30 October 2015
ASAsike-MakhandiaWilliam OukoW. OukoKMK. M'inoti
3,702 words in judgment
View original judgmentRead on Kenya Law Watch case
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The bottom line

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Money deposited in a joint court-ordered account pending appeal is just security, not a trust, and you cannot sue the bank or advocates over its interest terms.

What this practically means

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Executive summary

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This appeal arose from an originating summons filed by Kim Jong Kyu against Housing Finance Company Ltd and two firms of advocates over Kshs. 6,000,000 deposited in an interest-earning joint account pursuant to a conditional stay order under Order 42 rule 6(2) of the Civil Procedure Rules pending his appeal in Mombasa HCCC No. 335 of 2001. The appellant discovered that only about 1% interest had accrued and sought declarations that the advocates held the funds in trust for him, entitlement to 17% interest per annum, and disclosure of how the interest rate was determined and of rates applied to other customers. The High Court (Kasango, J.) dismissed the summons, finding no privity of contract between the appellant and the respondents, relying on Africa Edge Sari v Supinder Singh Soin. The Court of Appeal dismissed the appeal. Holding that a deposit under a conditional stay order is merely security for due performance of the decree, the court found no trust was created: the advocates' duty was to the court, not the parties, and the account opening form disclosed no beneficiary. The court affirmed that privity of contract barred the appellant's claim, noting he failed to bring himself within any exception. On the 17% claim, the court held that section 82 of the Advocates Act relieves a bank without knowledge of a beneficiary's rights of liability, and that interest rates are matters of negotiation. The Article 35 access-to-information claim failed as a fishing expedition inconsistent with section 31(2) of the Banking Act. The court also observed that originating summons procedure is unsuited to contentious constitutional claims, which require the 2013 Protection of Rights Rules.

Key legal issues

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01

Whether the joint account was held in trust for the appellant

Holding

No trust was created; the deposit was merely security for due performance of the decree, and the advocates' duty was to the court, not the parties.

Reasoning

The court distinguished deposits made under conditional stay orders from client funds held by advocates under the Advocates Act. By directing both counsel to be signatories, the court was providing a safeguard for the funds, not creating a trust. The account opening form disclosed no beneficiary and indicated the reason for opening as 'direct marketing.' The trust question could also not be divorced from the account contract between the advocates and the bank.

p. 5
02

Whether privity of contract and locus standi were properly applied against the appellant

Holding

Yes; the account opening contract was between the bank and the two advocates, and the appellant failed to bring himself within any exception to the privity doctrine.

Reasoning

The court agreed with the learned Judge that no privity of contract existed between the appellant and the respondents. Nothing in the account opening form indicated the account was for the appellant's benefit, and it would have been easy to state so had that been intended. The appellant therefore lacked locus standi to claim under the banking contract.

p. 5
03

Whether the appellant was entitled to 17% interest and to disclosure under Article 35

Holding

No; the alleged assurance was denied, section 82 of the Advocates Act relieves an ignorant bank of liability, and Article 35 cannot be used as a fishing expedition for other customers' information protected by section 31(2) of the Banking Act.

Reasoning

Interest rates depend on negotiation between bank and client based on amount and duration. A bank without knowledge that a deposit is for a beneficiary's benefit incurs no liability. The demand for details of over 10,000 joint accounts was unreasonable and unrealistic, and the constitutional right of access to information was improperly invoked in originating summons proceedings.

p. 6
04

Whether originating summons was the correct procedural vehicle

Holding

No; the procedure is designed for summary determination of simple points of law, and constitutional rights claims require the 2013 Protection of Rights Practice and Procedure Rules.

Reasoning

The court observed that courts have cautioned on the purpose of originating summons, and that Article 22(3) of the Constitution requires the Chief Justice to make rules for enforcement of rights, which have been made. The invocation of Article 35 was not properly informed by those decisions, and contentious questions should not be raised via originating summons.

p. 4

Legal principles established

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  • A deposit of a decretal sum in an interest-earning joint account ordered under a conditional stay constitutes security for due performance of the decree, not a trust in favour of the applicant for stay.
  • Advocates made sole signatories to a joint account opened pursuant to a court order owe their duty to the court, not to the parties, and the account opening contract is with the bank alone.
  • Originating summons procedure is unsuitable for contentious or complex disputes, including enforcement of constitutional rights, which must follow the Constitution of Kenya (Protection of Rights and Fundamental Freedoms) Practice and Procedure Rules, 2013.
  • Section 31(2) of the Banking Act protects customer information from disclosure, and Article 35 of the Constitution does not avail a litigant information relating to strangers' accounts, though relevant information may be disclosed by court order in appropriate cases.

Court orders

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  1. 1.The appeal is dismissed
  2. 2.Costs of the appeal awarded to the respondents

Authorities

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Legislation

  • Constitution of KenyaArticle 35(1)
  • Constitution of KenyaArticle 46(1)(b)
  • Constitution of KenyaArticle 22(3)
  • Civil Procedure RulesOrder 42 rule 6(2)(b)
  • Civil Procedure RulesOrder 37 rule 1
  • Civil Procedure RulesOrder 37 rule 16
  • Civil Procedure RulesOrder 52 rule 4
  • Banking Actsection 31(2)
  • Trustees Actsection 2
  • Trustees Actsection 57
  • Advocates Actsection 80
  • Advocates Actsection 82
  • Advocates (Accounts) Rulesgeneral
  • Advocates (Deposit Interest) Rulesgeneral
  • Central Bank of Kenya Prudential Guidelines 2013Guideline 3.2.11
  • Constitution of Kenya (Protection of Rights and Fundamental Freedoms) Practice and Procedure Rules, 2013general

Cases cited (5)

  • Africa Edge Sari v Supinder Singh Soin
    H.C. Civil Case No. 766 of 2012
  • Semakula & Co. Advocates v Uganda Revenue Authority
    (2012) UG COMNC 48
  • William Muthee Muthami v Bank of Baroda
    Civil Appeal No. 21 of 2006
  • Aineah Liluyani Njirah v Aga Khan Health Services
    Civil Application No. 194 of 2009
  • Kibutiri v Kibutiri
    (1983) KLR 1
On appeal from
High Court of Kenya at Mombasa
Misc. Appl. No. 178 of 2014 (OS)
Jurisdiction invoked
First appeal to the Court of Appeal from the High Court under the Constitution and the Court of Rules (Appellate jurisdiction over the High Court)

Key timeline

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Practical implications

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Frequently asked questions

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Later judgments citing this (10)

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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, "Kim Jong Kyu v Housing Finance Company Ltd & 2 others [2015] KECA 274 (KLR)", Case Analysis (2015). Civil Appeal No. 19 of 2015. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2015/274/eng@2015-10-30

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