Dyer and Blair Investment Bank Limited v John Kungu Kiarie & CFC another [2017] KECA 382 (KLR)
The bottom line
#Kenya's Court of Appeal slashed a Kshs 310 million award against Dyer and Blair to one year of treasury bond returns and let CFC Stanbic off entirely.
What this practically means
#Executive summary
#Key legal issues
#Admissibility of evidence from earlier criminal proceedings under Section 34 of the Evidence Act
The trial Judge erred in admitting the recorded evidence of the 1st appellant's General Manager from the criminal case because the statutory conditions for admissibility were not met.
Section 34 of the Evidence Act permits evidence given by a witness in a judicial proceeding to be admitted in a subsequent proceeding only where, among other conditions, the adverse party in the first proceeding had the right and opportunity to cross-examine and the questions in issue were substantially the same. The 1st appellant never participated in the criminal case and so had no opportunity to cross-examine its General Manager; his recorded testimony was therefore inadmissible in the civil suit.
Existence and source of the freezing order
No court order freezing the respondent's funds was issued on 20th April or 24th July 2003; it was the 1st appellant that volunteered to freeze the account.
The 20th April 2003 warrant authorised investigation only and did not freeze the funds, as the 1st appellant's own witness admitted. The 24th July 2003 document arising from the police affidavit did not amount to a formal order of the court within the meaning of Section 2 of the Civil Procedure Act. The respondent's applications to lift the freezing order in the criminal case and appeal did not establish its source. The 1st appellant had in fact written to the Anti-Banking Fraud Unit on 21st May 2003 volunteering to freeze the account.
Issue estoppel from the criminal proceedings
Issue estoppel did not bar the trial court from determining whether and when a freezing order was issued.
Estoppel of record arises where an issue of fact has been judicially determined in a final manner between the parties and the same issue arises directly in subsequent proceedings. The gravamen of the criminal proceedings was whether the respondent had obtained Kshs. 91.5M by false pretence; whether a freezing order existed, its basis and timing were neither considered nor determined in those proceedings. Consequently, the trial Judge was not estopped by record from making findings on those questions.
Defence of frustration of the investment contract
The defence of frustration was unavailable to the 1st appellant because its own conduct - unilaterally freezing the respondent's funds - caused the alleged supervening event.
A party cannot invoke frustration where the event said to frustrate the contract was brought about by its own act. Having found that no court order froze the funds and that the 1st appellant volunteered to freeze the account in its letter of 21st May 2003, the Court held that the failure to invest the funds was self-induced and that the trial Judge was right to reject the frustration defence.
Assessment of damages within the terms of the contract
Damages for breach of the investment contract must be assessed for the one-year contractual term at the applicable treasury bond rate, not over four years.
Clause 7 of the agreement fixed its duration at one year, and clause 8 provided the mechanism for extension, for which there was no evidence. The trial Judge erred in assessing damages over four years and in the interest awarded. The returns were recomputed at 10% per annum on the principal of Kshs. 91.5 million for one year, less the 1st appellant's commission and annual custody fees under Clause 4, with interest at court rates from the date of the High Court judgment.
Liability of the 2nd appellant (privity of contract and duty of care)
The 2nd appellant bore no liability: it was not privy to the investment contract and owed the respondent no duty of care in respect of the investment.
The 2nd appellant was the 1st appellant's banker and took instructions only from its customer. There was no privity of contract with the respondent, and the interest applied on the funds and the basis of freezing them could only be raised against the 1st appellant. The alleged collusion was not established against the 2nd appellant, and the suit against it was dismissed with costs.
Legal principles established
#- Evidence of a witness recorded in earlier proceedings is inadmissible in a subsequent proceeding under Section 34 of the Evidence Act unless the adverse party in the first proceeding had the right and opportunity to cross-examine
- A warrant to investigate an account does not freeze the funds in that account; a freezing order must be a formal expression of a decision of the court within the meaning of Section 2 of the Civil Procedure Act
- Issue estoppel does not arise where the issue now litigated was neither raised for consideration nor determined in the earlier proceedings
- The doctrine of frustration is unavailable to a party whose own conduct caused the event said to frustrate the contract
- An agent such as a stockbroker is responsible to his principal for loss occasioned by want of proper care, skill or diligence, and damages for breach are assessed within the terms of the contract
- A bank with no privity of contract with a claimant and no duty of care towards him cannot be held liable for losses arising from the conduct of its customer in whose account the claimant's funds were held
Court orders
#- 1.The 1st appellant's appeal succeeds in part: the assessment of damages and the interest applied thereon by the High Court are set aside
- 2.Damages are substituted with an award equivalent to the returns the respondent would have earned from investment in treasury bonds for one year, computed at 10% of the principal amount of Kshs. 91.5 million, less the 1st appellant's commission and annual custody fees under Clause 4 of the agreement
- 3.The respondent is entitled to interest at court rates on that amount from the date of the High Court judgment until payment in full
- 4.The 2nd appellant's appeal succeeds in its entirety: liability entered against the 2nd appellant is set aside and substituted with an order dismissing the suit as against it with costs
- 5.The 2nd appellant is awarded the costs of this appeal; the 1st appellant and the respondent shall bear their own costs
- On appeal from
- High Court of Kenya at Nairobi
- H.C.C.C No. 47 of 2008
- Jurisdiction invoked
- First appellate jurisdiction under the Court of Appeal Rules (appeal as of right from the High Court in a civil suit); consolidated under the Court of Appeal Rules by order of 16th May, 2017
Key timeline
#Practical implications
#Frequently asked questions
#Later judgments citing this (1)
#Judgments in the corpus that rely on this one. Where the Court said how it treated the authority, that is shown.
- Nderi (suing for and behalf of the Estate of late Mary Muthoni Nderi) v Nyeri Plot Owners Ltd & another (Civil Appeal 56 of 2016) [2021] KECA 917 (KLR)[2021] KECA 917 (KLR)5 Mar 2021applied
Cite this brief
#Cite this brief
Caselaw, "Dyer and Blair Investment Bank Limited v John Kungu Kiarie & CFC another [2017] KECA 382 (KLR)", Case Analysis (2017). Civil Appeal No. 78 of 2016 (consolidated with Civil Appeal No. 62 of 2016). Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2017/382/eng@2017-07-28
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.